EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 10, Problem 8RQ
To determine
To Explain: The impact a price level increase could make on the output level supplied by businesses as per the theory of misperceptions.
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The shape of the short-run aggregate supply (SAS) curve reflects two different types of microecanomic markets (auction markets and the posted price markets). How is the price level
Vinked to the level of dutput in each market? List five factors that might cause an upward shift of the SAS curve.
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According to the "4-Quadrant Model" (4QM), which of the following statement is correct?
O If there is a positive demand shock in the space market, the housing rent is going to increase in the short run,
and will be lower than the current rent in the long run.
If there is a positive demand shock in the space market, the housing price is going to decrease in the short run,
and increase in the long run.
If there is a positive demand shock in the asset market, the housing rent is going to decrease in the long run.
O If there is a positive demand shock in the asset market, the housing price is going to decrease in the short run,
and will be lower than the current price in the long run.
Suppose that in 2011, the price of cotton, an input good, decreases in Microtania. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve, and then answer the questions below.
Did equilibrium output increase or decrease?Increase/Decrease
Did equilibrium price increase or decrease?Increase/Decrease
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- If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?arrow_forwardIf the price level increases, what happens to the consumption function? Why?arrow_forwardOther things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expectedeffects on the equilibrium price level and the level ofreal output.a. A reduction in the economy’s real interest rate.b. A major increase in federal spending for healthcare (with no increase in taxes).c. The complete disintegration of OPEC, causing oilprices to fall by one-half. d. A 10 percent reduction in personal income taxrates (with no change in government spending).e. A sizable increase in labor productivity (with nochange in nominal wages).f. A 12 percent increase in nominal wages (with nochange in productivity).g. A sizable depreciation in the international value ofthe dollar.arrow_forward
- Carefully explain why the price level are rigid in the short run (SR). Illustrate your answer using a real world example where a price of an item may not change for months even though the raw material cost to produce that item may change.arrow_forwardIf the price level were to rise from 160 to 200, in what direction and by how much would the value of a dollar change?arrow_forwardThe aggregate supply curve shows the relationship between real GDP and the average price level. O True O Falsearrow_forward
- Q1. i. What happens if the population increases, but the supply of goods and services available to the market does not change? A. As a result of the non-adaptation of the supply, the demand increases and causes an increase in the price that is reflected in an increase in inflation. B. As a consequence, demand increases, there is a drop in prices and with it an increase in inflation. C. The demand rises because of equalizing with the maintained supply, there is a rise in prices that is reflected in an increase in inflation. D. As supply remains unchanged, demand shifts to the left and causes a rise in prices that reflects an increase in inflation. ii. The GDP of a nation is made up of ""n"" goods. There is an expansion in demand in all the markets that are part of the GDP calculation. For there to be an increase in real GDP without inflation, it must occur ..." A. That the offers of the n markets are fully elastic, that is, they have a slope equal to 1. B. That the offers of the n…arrow_forwardWhy is price “stickiness” or “rigidity” important for understanding macroeconomic adjustments? How would policy recommendations be different if prices adjusted immediately?arrow_forwardExplain what happens when prices are set above equilibrium. What conditions exist in disequilibrium and how does the market adjust back to equilibrium? Draw a graph to illustrate and include relevant labels.arrow_forward
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