Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 23, Problem 10PA
Sub part (a):
To determine
The impact of optimistic future expectations by the firms in the economy.
Sub part (b):
To determine
The impact of optimistic future expectations by the firms in the economy.
Sub part (c):
To determine
The impact of optimistic future expectations by the firms in the economy.
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Suppose firms become very optimistic about future business conditions and invest heavily in new capital
equipment.
a. Draw an aggregate-demand/aggregate-supply diagram to show the short-run effect of this
optimism on the economy. Label the new levels of prices and real output. Explain in words
why the aggregate quantity of output supplied changes.
b. Now use the diagram from part (a) to show the new long-run equilibrium of the economy.
(For now, assume there is no change in the long run aggregate-supply curve.) Explain in words
why the aggregate quantity of output demanded changes between the short run and the long
run.
c. How might the investment boom affect the long run aggregate-supply curve? Explain
Suppose firms become very optimistic about future business conditions and invest heavily in new capital
equipment.
a. Draw an aggregate-demand/aggregate-supply diagram to show the short-run effect of this
optimism on the economy. Label the new levels of prices and real output. Explain in words
why the aggregate quantity of output supplied changes.
b. Now use the diagram from part (a) to show the new long-run equilibrium of the economy.
(For now, assume there is no change in the long run aggregate-supply curve.) Explain in words
why the aggregate quantity of output demanded changes between the short run and the long
run.
c. How might the investment boom affect the long run aggregate-supply curve? Explain
Plaese mam/sir give me answer in deatail as soon as possible please
Part (e) of the following question:
Assume that a country’s economy is in long-run equilibrium.
(a) Using a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, show the short-run equilibrium price level, labeled PL1, and output level, labeled Y1.
(b) Assume that increased uncertainty has reduced business orders for equipment. What is the impact of the change in business orders on each of the following in the short run?
(i) Aggregate demand. Explain.
(ii) Employment
(c) Based on the change in business orders, what will happen to the long-run economic growth rate? Explain.
(d) Using a correctly labeled graph of the loanable funds market, show the effect of the change in business orders on the real interest rate in the country in the short run.
(e) Given the effect on the real interest rate identified in part (d), what will happen to each of the following?
(i) The supply of the country’s currency on the foreign…
Chapter 23 Solutions
Essentials of Economics (MindTap Course List)
Ch. 23.1 - Prob. 1QQCh. 23.2 - Prob. 2QQCh. 23.3 - Prob. 3QQCh. 23.4 - Prob. 4QQCh. 23.5 - Prob. 5QQCh. 23 - Prob. 1CQQCh. 23 - Prob. 2CQQCh. 23 - Prob. 3CQQCh. 23 - Prob. 4CQQCh. 23 - Prob. 5CQQ
Ch. 23 - Prob. 6CQQCh. 23 - Prob. 1QRCh. 23 - Prob. 2QRCh. 23 - Prob. 3QRCh. 23 - Prob. 4QRCh. 23 - Prob. 5QRCh. 23 - Prob. 6QRCh. 23 - Prob. 7QRCh. 23 - Prob. 1PACh. 23 - Prob. 2PACh. 23 - Prob. 3PACh. 23 - Prob. 4PACh. 23 - Prob. 5PACh. 23 - Prob. 6PACh. 23 - Prob. 7PACh. 23 - Prob. 8PACh. 23 - Prob. 9PACh. 23 - Prob. 10PA
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Similar questions
- Suppose 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_forwardAggregate 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 grapharrow_forwardquestion 1- Along the short-run aggregate supply curve (SRAS), an increase (rightward shift) in the aggregate demand curve will increase:a. both the price level and real GDP.b. real GDP without raising the price level.c. the price level without affecting real GDP.d. the price level but reduce real GDP. question 2- Which of the following would cause an increase (rightward shift) in the short-run aggregate supply curve (SRAS)?a. An increase in the long-run aggregate supply curve (LRAS).b. A decrease in the CPI.c. An increase in the CPI.d. A decrease in oil prices.arrow_forward
- Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. Assume that the United States economy is currently in a recession in a short-run equilibrium. e. Now assume instead that the government and the Federal Reserve take no policy action in response to the recession. i. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain. ii. In the long run, what will happen to the natural rate of unemployment?arrow_forwardIn 2006, the economy of Aptonville had an aggregate demand and aggregate supply according to the following schedule: Price Level Aggragate Demand Shortrun Aggragate Supply 90 $1325 $1085 100 $1300 $1140 110 $1275 $1195 120 $1250 $1250 130 $1225 $1305 140 $1200 $1360 150 $1175 $1415 What was Aptonville’s short-run equilibrium output in 2006?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
- Suppose that firms become very pessimistic about future business conditions and cut heavily on investment in capital equipment. [Label A, B, C for the initial, new short-run and new long-run equilibrium respectively] a)Use an aggregate-demand/aggregate-supply model to show the short-run effect of this pessimism on the economy. Label the new levels of prices and real output. Explain in words why the aggregate quantity of output supplied changes. (Use the sticky wage theory in your explanation)arrow_forwardSuppose the economy is in a situation of moderate unemployment, and then an exogenous increase of aggregate demand occurs. (Assume the aggregate demand schedule follows the pattern set out by the mainstream story.) Use short run aggregate supply and aggregate demand analysis to discuss in detail the effects of this demand change on the price level and real GDP in the short run. Explain how the situation could change in the long run after the happenings in the first part.arrow_forward
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