EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 36, Problem 1P
To determine
Real output for different price levels in the short run and the long run.
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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
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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
Chapter 36 Solutions
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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? Explainarrow_forwardSuppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (Qe = 90 and Qg = 300) and that the demands for gold and silver are given by the following equations: PG = 990 - Qg +0.50PS and Ps = 630 - Qg +0.50PG- What the the equilibrium prices of gold and silver? The equilibrium price of gold is $ and the equlibrium price of siliver is $. (Enter your responses rounded to two decimal places.)arrow_forwardSuppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (Q = 90 and Q = 300) and that the demands for gold and silver are given by the following equations: PG = 990 - Qg +0.50PS and Ps = 630 -Qs +0.50PG What the the equilibrium prices of gold and silver? The equilibrium price of gold is $ 1420 and the equlibrium price of siliver is $ 1040. (Enter your responses rounded to two decimal places.) What if a new discovery of gold doubles the quantity supplied to 180? How will this discovery affect the prices of both gold and silver? The equilibrium price of gold will be $ and the equlibrium price of siliver will be $arrow_forward
- 2) Use the table above to answer the following questions.a) What is the value of real GDP and price level at the long run macroeconomic equilibrium?b) What is the value of real GDP and price level at the short run macroeconomic equilibrium?c) Is the short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium?d) How will this economy return to its long run equilibrium? Explain using self-correctingmechanism.arrow_forward1) Suppose gold (G) and silver (S) are substitutes for each other because both serve as hedges against inflation. Suppose also that the supplies of both are fixed in the short run (Qg = 75 and Qs = 300) and that the demands for gold and silver are given by the following equations: PG = 975 – QG + 0.5Ps and Ps = 600 – Qs + 0.5PG. What are the equilibrium prices of gold and silver?arrow_forwardInstructions: Enter your answers as whole numbers. A) What are the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? B)If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? If the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? C) Suppose that buyers desire to purchase $ 200 billion of extra real output at each price level. What are the new equilibrium price level and level of real output?arrow_forward
- Assume that the long-run aggregate supply curve is vertical at Y = 3.000 while the short-run aggregate supply curve is horizontal at P=1.0, . The aggregate demand curve is Y = 2(M / P) and M = 1,500. Suppose the aggregate demand function shifts to Y = (1.5)(M / P) . What are the short- run values of P and Y? Show the change in short and long- run equilibrium graphically . Describe the short- run and long- run effects of the change in demand .arrow_forward2.3. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD rises from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD1 to the price level and output? What will happen in each case in the long-run?arrow_forwardSuppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and services. How the U.S. price level and real GDP will change in the short run?arrow_forward
- Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy's potential (full-employment) level of output. Next, suppose that the price level rises from 120 to 130. 160 AS, AS, 150 AS, 140 130 120 110 100 90 810 830 850 870 890 910 930 950 Real output (dollars) Activate Wi Price levelarrow_forwardPrice Level LAS SAS, SAS, LAD, SAS, AD AD₁ Real Output Refer to the graph. Suppose the economy is at SAS2 and AD3. What is a possible way the economy can return to potential output? What dynamic price level feedback effect could prevent the return to potential output? How would the dynamic price level feedback effect show up in the graph? A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD3 to the left A decrease in material costs in the economy; a decrease in material costs would decrease AD; a shift in AD3 to the right A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD1 O A decrease in asset prices in the economy; a decrease in asset prices would further decrease AD; a shift in AD from AD2 to AD3arrow_forwardThe supply of credit cards is given by q = 1400X, where X are real credit card balances, q isthe real price of the credit card balance. You also know that R = 0.05 (nominal interest rate)and P = 100. Answer the following questions about this:(a) If the money supply is M s= $5, 000, if P = 100 is the equilibrium price level, find Y (realoutput).(b) Suppose that the Federal Reserve Bank decides to increase the money supply by 10%.How much is the inflation rate as a result? Explain and justify your answer. (c) Further suppose that at the same time, real output, Y , increases by 10%. Now what isthe inflation rate? Does our quantity theory of money hold here? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forward
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