EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 37, Problem 5RQ
To determine
Sticky price and aggregate demand.
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Students have asked these similar questions
Price
level
170
140 F
120
100
0
L
AS
AD3
AD, AD₂
3.0 4.0 5.0 6.0 7.0 8.0
Real GDP
In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD2.
a. real GDP will increase from $3.0 to $7.0, and the price level will remain the same.
AD5
ADA
Ob. real GDP and the price level will both remain the same.
Oc. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.
O d. real GDP will increase from $3.0 to $4.0, and the price level will remain the same.
Consider a closed economy (no trade) where:
C = 400+0.8YD
lo = 1600
Go = 2200
NT = 0.2Y
a. Calculate Y*.
b. If Yp=10,000, is there an inflationary or recessionary gap?
c. Calculate the change in government expenditure (G) necessary to move the
economy back to its potential.
Price Level
LAS
SAS,
SAS,
AD
SAS,
AD,
AD,
Real Output
Refer to the graph. Suppose the economy is at SAS, and AD₂. 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?
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 AD3
O A decrease in material costs in the economy; a decrease in material costs would
decrease AD; a shift in AD from AD2 to AD1
A decrease in wages in the economy; a decrease in wages would further decrease
AD; a shift in AD from AD2 to AD3
A decrease in wages in the economy; a decrease in wages would further decrease
AD; a shift in AD from AD2 to AD1
Chapter 37 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
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Similar questions
- You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TLarrow_forwardFigure 13-4 Price level 112 110 8% O 12% 10% LRAS O 9.1% LAAS SRAS, 11.0 118 12.1 AD, SRAS Refer to Figure 13-4. In the figure above, LRAS₁ and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in year 2? AD₂ Real GDP (trillions of dollars)arrow_forward8. 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? L012.6 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 aggrega supply.arrow_forward
- Consider the basic AD/AS macro model. A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level Select one: O a. is lower and real GDP higher than in the initial equilibrium. O b. and real GDP are higher than in the initial equilibrium. O c. is higher and real GDP remained the same as in the initial equilibrium. O d. is higher and real GDP lower than in the initial equilibrium. O e. and real GDP are lower than in the initial equilibrium.arrow_forwardCOURSE: MACROECONOMICS - IS-LM and/or MUNDELL FLEMING MODELS Refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a NULL impact on GDP. Then, refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a MAXIMUM impact on GDP. EXPLAIN very briefly the mechanism by which each model generates that NULL or MAXIMUM impact on GDP. Hint: 2 conditions under increase of M (money) and how impact null (zero) and maximum on GDP. Example, considering both fiscal or monetary policies or liquidity trap model. Please graph and explain on detail both cases.arrow_forward4. LO 4 In Figure 3.11, after the 1981-1982 reces- sion, does the price level appear to be procyclical, countercylical, or acyclical? Why is this important?arrow_forward
- d. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggrega supply.arrow_forwardRefer to the diagram that shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. AS2 Following the negative AS shock shown in the diagram, the adjustment process will take the economy to a long-run equilibrium where the price level is and real GDP is AS, O A. 110: 1,120 O B. 50: 1.020 O C. 50; 950 O D. 110; 750 O E. 70; 1,020 70- 50- *...... AD 750 1020 1120 950 Real GDP Price Levelarrow_forwardline shows the relationship between planned aggregate expenditure and output, and line represents the condition that planned aggregate expenditure and output are equal. In the Keynesian cross diagram, the the expenditure; 45-degree O45-degree; consumption function 45 degree; expenditure consumption function; 45-degreearrow_forward
- Aggregate demand is defined as O the relationship between the total quantity of goods and services demanded and the income level, all other determinants of spending unchanged. the relationship between the total quantity of goods and services demanded and the price level, all other determinants of spending unchanged. the demand for goods and services generated by all sectors in the economy, holding price level constant. O the relationship between the total quantity of goods and services demanded and the supply of factors of production, all other determinants of production unchanged.arrow_forward9. Suppose Dina calculates her permanent income by adaptive expectations. Year 2010 Dina's permanent income was 68,000, and year2011 actual income is 71,000. Assume that, long-run marginal to consume is 0.90 and short-run marginal propensity to consume is 0.18. What is her consumption expenditure year 2011? * O 51,740 O 41,740 O 59,500 O 44,750 none of the above is correctarrow_forwardSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?arrow_forward
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