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 7CQ
To determine
Explain the reason why it is possible for the economy to temporarily achieve output levels beyond the long-run potential level.
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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?
describe what happens when firms and workers underestimate future prices in the economy. what would happen to actual output as opposed to the expected potential output.
Are all prices in the economy equally inflexible? Which ones show large amounts of short-run flexibility?
Chapter 9 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- For 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_forwardIf households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?arrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Explain the answer while focusing on what would happen to actual output as opposed to the expected potential output.arrow_forward
- Suppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?arrow_forwardSuppose the economy is operating at potential GDP when it experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?arrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Focus your answer on what would happen to actual output as opposed to the expected potential output. (Course is macroeconomics).arrow_forward
- What happens when firms and workers underestimate future prices in the economy. On what would happen to actual output as opposed to the expected potential output.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_forwardThe demand for Home output from foreign countries increased in an economy which was initially in the long-run equilibrium. In the short-short-run, the economy deviated from its full employment output level. After that, in the long-run, which curve (AD, SRAS, or LRAS) would shift to direction (Left or Right)? Curve: Direction:arrow_forward
- Depict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.arrow_forwardIf the price level rises and the money wage rate rises by the same percentage, what happens to the quantity of real GDP supplied? Along which aggregate supply curve does the economy move?arrow_forwardWhich 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
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