Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 24, Problem 4SCQ
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
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Students have asked these similar questions
How is long-term growth illustrated in an AD/AS model?
Using the AD/AS model, what would be an explanation for observing an increased price level and a decreased real GDP?
wages have increased.
the money supply has decreased.
productivity has increased.
the money supply has increased.
What are some of the ways in which exports and imports can affect the AD/AS model?
Chapter 24 Solutions
Principles of Economics 2e
Ch. 24 - Describe the mechanism by which supply creates its...Ch. 24 - Describe the mechanism by which demand creates its...Ch. 24 - The short run aggregate supply curve was...Ch. 24 - In the AD/AS model, what prevents the economy from...Ch. 24 - Suppose the U.S. Congress passes significant...Ch. 24 - Suppose concerns about the size of the federal...Ch. 24 - How would a dramatic increase in the value of the...Ch. 24 - Suppose Mexico, one of our largest trading...Ch. 24 - A policymaker claims that tax cuts led the economy...Ch. 24 - Many financial analysts and economists eagerly...
Ch. 24 - What impact would a decrease in the size of the...Ch. 24 - Suppose, after five years of sluggish growth, the...Ch. 24 - Suppose the Federal Reserve begins to Increase the...Ch. 24 - If the economy is operating in the neoclassical...Ch. 24 - If the economy is operating In the Keynesian zone...Ch. 24 - What is says law?Ch. 24 - What is Keynes; law?Ch. 24 - Do neoclassical economists believe in Keynes law...Ch. 24 - Does Says law apply more accurately in the long...Ch. 24 - What is on the horizontal axis of the AD/AS...Ch. 24 - What is the economic reason why the SRAS curve...Ch. 24 - What are the components of the aggregate demand...Ch. 24 - What are the economic reasons why the AD curve...Ch. 24 - Briefly explain the reason for the near-horizontal...Ch. 24 - Briefly explain the reason for the near-vertical...Ch. 24 - What is potential GDP?Ch. 24 - Name some factors that could cause the SRAS curve...Ch. 24 - Will the shift of SRAS to the right tend to make...Ch. 24 - What is stagflation?Ch. 24 - Name some factors that could cause AD to shift,...Ch. 24 - Would a shift of AD to the right tend to make the...Ch. 24 - How is long-term growth illustrated in an AD/AS...Ch. 24 - How is recession illustrated in an AD/AS model?Ch. 24 - How is cyclical unemployment illustrated in an...Ch. 24 - How is the natural rate of unemployment...Ch. 24 - How is pressure for inflationary price increases...Ch. 24 - What are some of the ways in which exports and...Ch. 24 - What is the Keynesian zone of the SRAS curve? How...Ch. 24 - What is the neoclassical zone of the SRAS curve?...Ch. 24 - What is the intermediate zone of the SRAS curve?...Ch. 24 - Why would an economist choose either the...Ch. 24 - On a microeconomic demand curve, a decrease in...Ch. 24 - Economists expect that as the labor market...Ch. 24 - If new government regulations require firms to use...Ch. 24 - During spring 2016 the Midwestern United States,...Ch. 24 - Hydraulic fracturing (tracking) has the potential...Ch. 24 - Some politicians have suggested tying the minimum...Ch. 24 - If households decide to save a larger portion of...Ch. 24 - If firms become more optimistic about the future...Ch. 24 - If Congress cuts taxes at the same time that...Ch. 24 - Suppose the level of structural unemployment...Ch. 24 - If foreign wealth-holders decide that the United...Ch. 24 - The AD/AS model is static. It shows a snapshot of...Ch. 24 - Explain why the short-run aggregate supply curve...Ch. 24 - Explain why the short-run aggregate supply curve...Ch. 24 - Why might it be important for policymakers to know...Ch. 24 - In your view, is the economy currently operating...Ch. 24 - Are Says law and Keynes law necessarily mutually...Ch. 24 - Review the problem in the Work It Out titled...Ch. 24 - The imaginary country of Harris Island has the...Ch. 24 - Table 24.4 describes Santhers economy. Plot the...
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Similar questions
- Using the AD/AS model, show how fear of a recession is expected to affect an economy experiencing too much inflationarrow_forwardUsing the AD/AS model construct two graphs that show how a recession can occur? Explain how discretionary fiscal or monetary policies can be used to moved the economy out of recession?arrow_forwardUsing the AD/AS model, what would be an explanation for observing an increased price level and a decreased real GDP? Group of answer choices wages have increased. productivity has increased. the money supply has increased. the money supply has decreased.arrow_forward
- In the AD/AS model, the multiplier magnifies the effect of autonomous spending, for example government spending, on the budget deficits aggregate demand tax receipts potential GDParrow_forwardUse the AD/AS framework to explain how the economy adjusts in the short run and the long run to each of the following (assuming that the economy starts at potential GDP with no spare Capacity and a given price level): a) World energy prices rise and then settle at a new higher level, and this raises input prices for all domestic producers. b) There is a one-off fall in export demand which stays at the new lower level. c) The monetary policy makers lower their official interest rate and hold it at the new lower level. d)The government raises its current spending and keeps it at the new level. e)Say what might have happened to the other components of aggregate demand when the economy has adjusted to the change In d) in the long run.arrow_forwardRecent economic reports forecast an increase in the interest rate, which likely increases households' desire to save more and decreases business willingness to invest. Use the AD/AD model to show the effects of an increase in the interest rate on the equilibrium Real GDP and Price index?arrow_forward
- How does AD/AS Model Incorporates Economic Growth, unemployment, and inflation. Identify periods of economic growth and recession using the AD/AS models. Explain how unemployment and inflation impact the AD/AS model. Evaluate the importance of AD/AS models from a macroeconomic standpoint and analysis.arrow_forwardSuppose you are Herb Stein, Chair of Economic Advisors to President Ford. OPEC has just quadrupled the price of oil. The entire economy uses oil in manufacturing (exaggeration, but not a big one), consequently the costs reflected by the AS curve dramatically increase. Using the AD/AS model, what happens to output and prices? Same role, a recession with inflation now exists(stagflation), both are serious, 10% u/e, 14% inflation. You are thinking of proposing a solution to the recession, the negative GDP gap is $300 billion, the MPC is .75. Businesses won't increase Investment because of fear of losses You remember from your econ 101 class, that there is a multiplier effect for Government Expenditures. If you just want to fix this negative gap, how much Government expenditure would you propose? Same role, Using the AD/AS model, what would you expect to be the result of your proposal in the above question, with regard to output, and inflation? Does the degree of the shape of the AD/AS…arrow_forwardExplain how might positive thinking help an economy expand? Demonstrate your explanation using the AD / AS graph as part of your answer.arrow_forward
- Use AD/AS model to solve the following problems. You have to DRAW and explain AD/AS model. Hydraulic fracturing ( fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas. Scenario A: the economy is operating at full employment level of output. Scenario B: The economy is operating below full employment. what will happen to output, the price level, and employment as fracking becomes more widely used? LO1: Analyze the dynamic economic environment using economic notions and theories. LO2: Explain consumer and producer behavior and economic decision-making of economic units under different market structures. LO3: Describe and interpret measures of macroeconomic performance including potential efficiencies, government actions, and market forces.arrow_forwardAssume that the Fed engages in a policy action that drives the economy above full employment. Use the AD/AS model to show the effects of this policy in both the short-run and in the long-run.arrow_forwardUse AD/AS model to solve the following problem. You are expected to: 1. DRAW and explain with AD/AS model. Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas. In the following two scenarios, what will happen to output, the price level, and employment as fracking becomes more widely used? Scenario A: the economy is operating at full employment level of ouptput. Scenario B: The economy is operating below full employment.arrow_forward
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