MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 10.A, Problem 5SQP
To determine
Long-run adjustment process in the economy.
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Students have asked these similar questions
Which of the following is true about Long Run Equilibrium?
a. the economy is experiencing Long Run Inflation
b. the economy is operating under some Frictional and Structural employment.
c. the economy is operating with zero frictional or structural unemployment
d. the economy is experiencing high unemployment
Suppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions: AD:= 360 – 4Y AS: P = 20 + 4Y Something occurs in the economy and the aggregate demand changes to: AD: P = 400 – 4Y Calculate the inflation rate that occurs with the change in aggregate demand.
Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, which of the following explains the adjustment towards long-run equilibrium depicted in Figure B?
a. Unemployment (resulting from the short-run equilibrium being below LRAS) causes wages to decline, which increases AS till long-run equilibrium is attained at full employment level of income and a lower price level.
b. Government spending is increased, increasing AD to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level
c. In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the AS to decrease to the point where long-run equilibrium is restored.
d. Taxes are increased reducing AD to a level consistent with long-run equilibrium
Chapter 10 Solutions
MACROECONOMICS FOR TODAY
Ch. 10.7 - Prob. 1YTECh. 10.A - Prob. 1SQPCh. 10.A - Prob. 2SQPCh. 10.A - Prob. 3SQPCh. 10.A - Prob. 4SQPCh. 10.A - Prob. 5SQPCh. 10.A - Prob. 6SQPCh. 10.A - Prob. 1SQCh. 10.A - Prob. 2SQCh. 10.A - Prob. 3SQ
Ch. 10.A - Prob. 4SQCh. 10.A - Prob. 5SQCh. 10.A - Prob. 6SQCh. 10.A - Prob. 7SQCh. 10.A - Prob. 8SQCh. 10.A - Prob. 9SQCh. 10.A - Prob. 10SQCh. 10.A - Prob. 11SQCh. 10.A - Prob. 12SQCh. 10.A - Prob. 13SQCh. 10.A - Prob. 14SQCh. 10.A - Prob. 15SQCh. 10.A - Prob. 16SQCh. 10.A - Prob. 17SQCh. 10.A - Prob. 18SQCh. 10.A - Prob. 19SQCh. 10.A - Prob. 20SQCh. 10 - Prob. 1SQPCh. 10 - Prob. 2SQPCh. 10 - Prob. 3SQPCh. 10 - Prob. 4SQPCh. 10 - Prob. 5SQPCh. 10 - Prob. 6SQPCh. 10 - Prob. 7SQPCh. 10 - Prob. 8SQPCh. 10 - Prob. 9SQPCh. 10 - Prob. 10SQPCh. 10 - Prob. 11SQPCh. 10 - Prob. 1SQCh. 10 - Prob. 2SQCh. 10 - Prob. 3SQCh. 10 - Prob. 4SQCh. 10 - Prob. 5SQCh. 10 - Prob. 6SQCh. 10 - Prob. 7SQCh. 10 - Prob. 8SQCh. 10 - Prob. 9SQCh. 10 - Prob. 10SQCh. 10 - Prob. 11SQCh. 10 - Prob. 12SQCh. 10 - Prob. 13SQCh. 10 - Prob. 14SQCh. 10 - Prob. 15SQCh. 10 - Prob. 16SQCh. 10 - Prob. 17SQCh. 10 - Prob. 18SQCh. 10 - Prob. 19SQCh. 10 - Prob. 20SQ
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Similar questions
- Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, the aggregate supply curve is vertical in the diagram because: A) nominal wages and other input prices are assumed to be fixed. B) real output level Qf is the potential level of output. C) price level increases produce perfectly offsetting changes in nominal wages and other input prices. D) higher than expected rates of actual inflation reduce real output only temporarily.arrow_forwardSuppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium? Select one: a. Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. b. Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H. c. In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. d. Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed.arrow_forwardAssume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level.arrow_forward
- Assume that aggregate demand is unaffected by the oil price spike. After the economy has fully adjusted to the oil price spike, the long-run effect is (no change, an increase, a decrease) in aggregate output and (no change, an increase, a decrease) in the price level.arrow_forwardA long-run equilibrium occurs when aggregate demand and aggregate supply are in equilibrium ____ a) below potential output b) at potential output c) above potential output d) at any level of outputarrow_forwardIf a short run equilibrium occurs at a level of output below the full-employment output, then there will be a(n)_______________, and (in the absence of government policy intervention) during the transition to the long run equilibrium output will ____________.a. inflationary gap; rise. b. inflationary gap; decrease.c. recessionary gap; rise. d. recessionary gap; decrease.arrow_forward
- The upward slope of the short-run aggregate supply curve is based on the assumption that: 1) Nominal wages and other resource costs do not respond to price level changes 2) Nominal wages and other resource costs do respond to price level changes 3) Nominal wages are greater than real wages 4) Nominal wages are less than real wages A fall in prices of imported resources will cause aggregate: 1) Supply to increase 2) Demand to increase 3) Supply to decrease 4) Demand to decreasearrow_forwardOil price shocks have an evident impact on the short run aggregrate supply curve. With the help of a graph demonstrate how rising oil prices effect the SRAS and explain what other factors can cause this shift.arrow_forwardThe aggregate supply curve (short run) is upward-sloping because ______arrow_forward
- One reason the short-run aggregate supply curve is positively sloped is that lower price level raises ________________ if nominal wages are sticky. (a) Real wages (b) nominal wages (c) unemployment (d) employmentarrow_forwardAfter the economy moves to its new short-run equilibrium, the price level is _ than before, real GDP is _ than before, and the unemployment rate is now _the full employment rate of unemployment. A)Higher; lower; above B)Higher; higher; below C)Lower; lower; above D)Lower; higher; below E)Lower; lower; equal to F)Higher; higher; equal toarrow_forwardAssuming a stable short-run supply curve, what will happen if there is a shift in aggregate demand? a) Profits and output increase in the long-run. b) Unemployment decreases in the long-run. c) Profits and output decrease in the short-run. d) Unemployment increases in the short-run. e) Unemployment and prices move in opposite directions in the short-run.arrow_forward
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