Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 12, Problem 5QQ
To determine
The impact of higher output than the natural level in long-run.
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Students have asked these similar questions
(1) Suppose the economy is in long-run equilibrium. If there is a sharp increase in the expected price level, what do we expect to happen?
Select one:
(A) In the short run, the SRAS curve will shift left, real GDP and price will fall.
(B) In the short run, SRAS will shift right, real GDP will rise and prices will fall.
(C) In the short run, AD will shift left, real GDP and prices will fall.
(D) In the short run, LRAS and SRAS will shift left, causing real GDP to fall.
Aggregate demand and aggregate supply, based on a problem from “Principles of Economics” by N. Gregory Mankiw
a) List the components of country’s GDP in an open economy. For each component, provide an example of an event that would cause a shift of the aggregate demand curve to the right.b) What will be the effect of such events on the level of prices and the real outcome in the short run? Provide a graph.c) What will be the effect of such events on the level of prices and the real outcome in the longrun? Update your graph
#17 The long-run aggregate supply curve shifts right if
a
technology advances.
b
the capital stock increases.
c
immigration from abroad increases.
d
All of the above are correct.
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Similar questions
- In the short run, what is the impact on the price level and real GDP of each ofthe following:a. An increase in consumption brought about by a decrease in interest rates.b. A decrease in exports brought about by an appreciation of the dollar.c. A rise in wage rates.d. A beneficial supply shock.e. An adverse supply shock.arrow_forwardSuppose that firms become very pessimistic about future business conditions and cut heavily on investment in capital equipment. Show the long-run equilibrium of the economy. Explain what happens to Price level and Quantity of Output in the long run equilibrium. Explain in words why the aggregate quantity of output demanded changes between the short run and the long run. [No policy involvement]arrow_forwardAssume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run?a. An increase in aggregate demand.b. A decrease in aggregate supply, with no change in aggregate demand.c. Equal increases in aggregate demand and aggregate supply.d. A decrease in aggregate demand.e. An increase in aggregate demand that exceeds an increase in aggregate supply.arrow_forward
- 7) The Keynesian portion of the short-run aggregate supply (SRAS) curve implies: a) an upward slope. b) a downward slope c) flexible prices and wages d) the price level does not change.arrow_forwardSuppose that the economy's long-run output level is produces accourding to the following production funciton: Y= AK^1/2L^1/2 (will attach picture of the function) and that A = 5, K = 400 and L = 100 A. What is the economic meaning of the powers of K and L? B. What is the level of output ? produced when the economy in long-run equilibrium. C. Suppose that aggregate demand in the economy is described by the following equation:Y^d = m/kP Where M is the money supply, P is the price level and k = 1/V (velocity of money). Explain carefully where this equation is derived from and its interpretation D. Suppose that M = 2000 and that k = 2. What is the price level P at which the economy is in long-run- equilibrium? Plot such an equilibrium on a diagram with P on the vertical axis and Y on the horizontal axis, by distinguishing between the short-run and the long-run equilibrium. E. Now suppose that starting from the equilibrium of (b) and (c), the Central Bank increases M to 3000. Calculate…arrow_forward(b) Assume that no policy action is taken. a. Show on your graph from part (a) the change in short-run aggregate supply that will return the economy to the natural rate of output. Explain why this happens. b. Label the new equilibrium output and price levels.arrow_forward
- The short run aggregate supply curve was constructed assuming that as the price of outputs increases, the puce of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?arrow_forward1- Equilibrium in goods market (IS) and money market (LM) gives the a. long-run equilibrium b. short-run equilirium c. both d. none 2- Which of the following shift the aggregate demand curve to the right? decrease in the central banks inflation target increase in investment in business plant and equipment increase incost of production increase in imports 3- The slope of the LM curve is determined by a. the sensitivity of investment spending to the real interest rate b. the gap between the return on money and the market interest rate c. the effectiveness of monetary policy d. the sensitivity of the demand for real money balances to the nominal interest rate 4- . Economic growth and money growth rates are 4% and 9%, respectively. Then, the rate of inflation is a. 9 % b. -5 % c. 13 % d. 5 % 5- . Monetary…arrow_forward18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=Parrow_forward
- Assume that the central bank has an inflation target and it follows an interest rate rule. The economy is operating at the medium run equilibrium. a) Draw a neat diagram showing the AS-AD curves at the medium-run equilibrium. Carefully label the curves, the axes, and the significant points on the axes (Y, , , Y etc.). b) Explain in words why the AS curve slopes upward, and why the AD curve slopes downwards. Now suppose new digital technologies developments (think of Google, Amazon, Netflix, etc) occur that lead to a permanent decrease in the degree of competition in the economy - that is, an aggregate increase in firms' markup "m" on marginal cost. c) What will be the short run impact of these developments on the economy? Use an AS-AD diagram to explain your answer. (d) What will be the effect of these developments on the labour market in the medium run? Use a wage-setting and price-setting (WS-PS) diagram to explain what will happen to the natural rate of unemployment and…arrow_forward3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.arrow_forwarda. What are the short-run equilibrium real GDP and price level in 2019?b. What is the long-run equilibrium real GDP?c. Is the short-run macroeconomic equilibrium a full-employment equilibrium, belowfull-employment equilibrium, or above full-employment equilibrium?d. In transition to the long run, how would the wages in this economy change?e. Following from d, explain how would the short run supply curve move to its long runposition, as the changes in the nominal wages take effect.f. What will the long run price level be?arrow_forward
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