Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 9, Problem 2CQ
To determine
Identify the relationship between the
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What impact would a change that shifts an economy's production possibilities curve outward have on the long run aggregate supply curve? How have improvements in computer technology affected production possibilities and the long run aggregate supply curve? Explain.
A production possibilities curve (PPC) represents the maximum amount of two goods or services produced by manufacturers in an economy.
How are the PPC and long-run aggregate supply curve similar?
Why does the short-run aggregate supply curve slope upward to the right? If the prices of both (a) resources and (b) goods and services increased proportionally (by the same percentage), would business firms be willing to expand output? Why or why not?
Chapter 9 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- what impact would a change that shift an economys production possibilities curve outward have on the long run aggregate supply curve?arrow_forwardA production possibilities curve (PPC) represents the maximum amount of two goods or services produced by manufacturers in an economy. Draw a correctly labeled PPC for U.S. production of consumer and capital goods. 2. Policymakers enact an investment tax credit for firms that finance technological research and development. Assuming producers of both consumer and capital goods are affected, illustrate on your PPC the long-term effects of this tax credit. 3. Using a correctly labeled graph of the long-run aggregate supply curve, show how the natural rate of output would respond to the tax credit in the long run. Explain.arrow_forwardSuppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?arrow_forward
- The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the…arrow_forwardIllustrate each of the following situations with a graph showing the Short-run Aggregate Supply curve: a. A decrease in productivity of labor and capitalarrow_forwardFor each of the following scenarios predict how the price level and output will change over time from immediate impact to long-run impact. In each case, consider an economy that was initially producing at its level of potential output. a. The government passes legislation that increases corporate taxes by 25%. b. Economies around the globe are experiencing a time of prosperity and, as a result, demand for U.S. exports increases.arrow_forward
- Which of the following would not cause a shift in the long-run aggregate supply curve? a) An increase in the available capital b) An increase in the available technology c) An increase in price expectations d) An increase in the available labour e) All the abovearrow_forward(Changes in Aggregate Supply) List three factors that can change the economy’s potential output. What is the impact of shifts of the aggregate demand curve on potential output? Illustrate your answer with a diagramarrow_forwardUse the following table to answer the questions below. Aggregate Price Level Output (SRAS) Output (Aggregate Demand) 150 1,000 200 125 800 400 100 600 600 75 400 800 50 200 1,000 Graph the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves. Label them AD1 and SRAS1. What are the aggregate output (Y) and the aggregate price level? Assume aggregate demand grows by 200 at each price level. Graph the new AD and label AD2. What are the new aggregate output (Y) and the aggregate price level? If full-employment output is 600, is the economy experiencing recessionary or inflationary pressures? If the economy experiences “self-correction”, how much would the SRAS curve need to shift in order for the economy to return to full-employment output at 600? What would be the new equilibrium aggregate price level.arrow_forward
- The accompanying graph illustrates an economy in long-run equilibrium which is denoted by point ELR. Suppose a new technology is discovered which increases productivity. In the graph, demonstrate how the economy moves to its new long-run equilibrium by shifting the appropriate curves and placing point ELR at the new long-run equilibrium. In the long run, the aggregate price level increases. decreases. does not change. and real GDP (aggregate output) increases. decreases. does not change.arrow_forwardWhat assumptions cause the immediate-short-run aggregate supply curve to be horizontal? Why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve.arrow_forward:25- Which of the following statements is true in a situation where labor productivity increases in an economy? a) aggregate supply decreases B) aggregate supply shifts to the right NS) aggregate supply shifts to the left D) aggregate demand shifts to the right TO) aggregate demand shifts to the leftarrow_forward
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