Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 22, Problem 12P
To determine
To explain:
The type of effect and change in the slope of the short-run
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Assume 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.
In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that
a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same
b. aggregate demand and prices will increase but interest rates will not change
c. aggregate demand and interest rates will decrease but prices will increase
d. aggregate demand, prices, and the interest rate will all decrease
e. the AD-curve will shift to the right and the AS-curve will shift to the left
The writing assignment requires applying your knowledge of how shifts in aggregate demand (AD) and aggregate supply (AS) affect the economy. Relevant knowledge is important because shifts in AD and AS affect all aspects of an economy, including output and unemployment.
Using aggregate demand and aggregate supply, explain what happens in the short run if the Federal Reserve raises interest rates in the economy? Assume that the economy is at full employment before the interest rate increase. Be sure to detail what happens to:
aggregate demand
the price level
the level of GDP
and unemployment.
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- Explain the likely effects of a U.S. boom on the demand for Canadian exports. What would be the effect on Canadian aggregate demand? Suppose the Bank of Canada viewed its monetary policy as being appropriate for keeping GDP of Canada close to potential GDP. What would you then predict to be the Central Bank's response to the foreign boom in U.S.?arrow_forwardThe economy is currently producing at potential output. The relationship between the real interest rate and short-run output is described by an IS curve with b = 0.5. The current real interest rate is 6% and the MPK is 3%. Now suppose that a negative aggregate demand shock causes short-run output to drop to -2.25%. To stimulate investment and bring the economy back to potential output, the central bank must set the real interest rates to percent.arrow_forwardOn January 7th, 2009, due to a series of disputes between Russian and Ukrainian gas companies, all Russian gas flow through the Ukraine was halted, completely cutting off supplies of gas to Southeastern Europe, much of which is completely reliant on Russian gas. Slovakia, for example, is 100% percent dependent on Russian gas imports. They had to resort to alternative fuel for several weeks before the energy crisis was resolved. During this period of time, Slovakia's short run macro aggregate supply curve very likely . Group of answer choices became vertical shifted to the right stayed the same shifted to the leftarrow_forward
- Assume that the economy is in equilibrium when aggregate demand curves shifts to the right. What happens to the economy in the short-run? the GDP gap becomes positive. Allowed to self-correct, the economy will experience higher inflation. the GDP gap becomes negative. Allowed to self-correct, the economy will experience higher inflation. the GDP gap does not change, but the inflation rate will rise. there is not enough information to answer the question.arrow_forwardIf the long run macro aggregate supply curve is vertical, and there is no additional shock to the economy, then an increase in government spending _______________________ . Group of answer choices decreases aggregate output in the short run decreases aggregate output in the long run increases aggregate output in the long run does not affect aggregate output in the long runarrow_forwardThe federal government tends to increase their spending to get the economy out of recession. Explain the expected impact on each of the components of aggregate demand due to this and the mechanism through which this operates.arrow_forward
- In the past 10 years, Asia-based investors have made large investments in Canadian real estate markets. Many commentators believe that this investment has the aim of moving wealth from risky home markets into the safer Canadian market. What will the effect of this capital flow on Canadian aggregate demand?arrow_forwardthe misperceptions theory of the short run aggregate supply curve says that if the price level is higher than people expected then some firms believe that the relative price of what they produce has decreased and so they increase production decreases so they decrease produciton increased so they increase production increased so they decrease productionarrow_forwardPlease Draw A Graph. In 2007, potential GDP approximately equal actual real GDP. Represent this economic situation with an AS/AD model. (Show the short run equilibrium and where this equilibrium is compared to the long run aggregate supply curve.)arrow_forward
- Which event would shift short-run aggregate supply to the right? (a) A labor shortage puts upward pressure on wages, causing an increase in the expected rate of inflation. (b) An increase in government regulation makes it more costly for firms to comply with legislative requirements. (c) Expecting inflation to increase, workers bargain for higher wages. ( d) Internet technology allows retailers to use just-in-time delivery of merchandise, thereby lowering inventory costs. Only typed answer and don't use chat gptarrow_forwardOil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.arrow_forward137.) If residents are myopic, an increase in “worthless” government spending, financed by higher current taxes will cause Lower output and higher prices in the short run A rise in aggregate demand, and thus higher output in the long run A decrease in aggregate demand None of the abovearrow_forward
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