Due to hurricane in the US half of the orange growing trees destroyed which cause aggregate supply curve to shift leftward to SRAS2 from SRAS1 as less trees can supply less amount of oranges. The reduced supply will take prices up to P*2 from P*1 and output falls to Y2 from Y1 in short run. The new equilibrium will be E2
However, in the long run, the increase in unemployment rate caused due to fall in national output will reduce wage rate in the economy and thus reduce cost of production shifting the SRAS2 curve back to SRAS1 and thus new long run equilibrium in the economy is restored at point E1 where price level has fallen to initial level and output is at its potential level.
Graph this question. Consider the aggregate demand and aggregate supply model from class. Suppose that the...
Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock. (10 points)
9. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $120 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods...
The following figure depicts the aggregate demand (AD), the
short-run aggregate supply (SRAS), and the long-run aggregate
supply (LRAS) curves for an economy. The economy is initially at
long-run equilibrium, at point A. Suppose that there is an increase
in the amount of investment in the economy due to a reduction in
the real interest rate. This increase in investment shifts the AD
curve to the right, depicted below in the movement of the economy
from point A to point...
Most economists use the aggregate demand and aggregate supply model primarily to analyze which of the following? Select one: a. productivity and economic growth O b. short-run fluctuations in the economy O C. the effects of macroeconomic policy on the prices of individual goods d. the long-run effects of international trade policies > In which situation would the long-run aggregate- supply curve shift left? Select one: a. if there is a hurricane O b. if the capital stock increases c....
Question 1: AD-SRAS-LRAS Model Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves, graphically illustrate the effect of an increase in the money supply on output and prices in the short and long run. Assume that the economy is initially in long run equilibrium at the potential output level and prices are fixed in the short-run. In your graph, label "A" for the initial equilibrium, "B' for the short-run equilibrium, and "C" for the long-run equilibrium.
IV. Suppose an economy is in long run equilibrium. (a) Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium on a BIG and clearly labeled graph. Label the equilibrium point A. Be sure to include the short-run and long-run aggregate supply. (b) Household spending increases. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium (label it point B) (c)...
Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS) curves, briefly explain how an open market purchase will affect the equilibrium price level (P) and real output (Y) in the short run. Assume the economy is initially in a recession?
question 1,2,3 and 4
Explain the three reasons why the aggregate-demand curve slopes downward.. Give an example of an event that would shift the aggregate-demand cure. Which way would this event shirt the curve? 2. Suppose that the election of a popular prime minister suddenly increases les confidence in the future. Use the model of aggregate demand and aggregate supply to analyze the effect on the economy Name two macroeconomic variables that decline when the economy goes into a recession....
QUESTION 7 (25 points): Economic Fluctuation using AD-AS framework Suppose that the short-run aggregate supply curve has a positive slope and that the economy starts at a long-run equilibrium. Now imagine that 10 million people move to Australia they found that Australians live an average of 10 extra years due to the relax lifestyle that they enjoy. This is a permanent change in Labor in the U.S. economy. (a) (10 points) No Policy Intervention: Using the model of Aggregate Demand...
Suppose the aggregate demand and the short-run aggregate supply of a country INCREASES 2. (9 points) Starting from a long-run equilibrium, use an AD-AS diagram illustrate the effects of these two changes. Label the initial long-run equilibrium as point A and the resulting short-run equilibrium as point E. a. b. (6 points) Suppose policymakers adopt contractionary macroeconomic policies to restore the long run equilibrium. On the same diagram from part a, show the resulting impact on AD or AS curve...