20 the correct answer is option B. GDP is equal to Y* but price level below P*.
Reason - if government did not intervene during recession the economy will be self correct itself. Due to unemployment and fall in nominal wage in long run. The economy will be back to potential output but a lower aggregate price level.
21. The correct answer is C.
Reason - stagflation occurs when production of goods and services in the economy slows down and starts decline.
20. From the short-run equilibrium at point B, suppose the aggregate demand remains un- changed and...
()-run equilibrium occurs at the intersection of the aggregate demand curve, AD, and the short-run aggregate supply curve, SRAS.() ▼ Long Short -run equilibrium occurs at the intersection of AD and the long-run aggregate supply curve, LRAS. Any unanticipated shifts in aggregate demand or supply are called aggregate demand or aggregate supply() ▼ shocks externalities . When aggregate demand decreases while aggregate supply is stable,() ▼ a recessionary an inflationary gap can occur, defined as the difference between how much...
The graph below depicts the aggregate demand, Irrun aggregate supply, and short-run aggregate supply curves for the United States at an initial long-run macroeconomic equilibrium Price level] (P) LRAS SRAS Real GDP Consider a situation in which two things happen simultaneously: there is a deterioration of institutions, and the federal government massively increases spending. Which of the graphs below illustrates the shifts in this model given this situation? Price level Price level (P) (P) URAS LRAS, LRAS SRAS SRAS SRAS...
The economy's long-run equilibrium is at the point where the aggregate demand curve intersects the long-run aggregate supply curve. True False The aggregate supply curve shows the relationship between real GDP and the average price level. True False
Using the IS-LM and Aggregate Supply-Aggregate Demand (AS-AD) models of Chapter 12 with a flat short-run AS curve (that is, completely sticky prices), suppose the economy is at the natural rate of unemployment and so, at long-run equilibrium. Suddenly, taxes are reduced with no change in government spending. Tell me (or show on a graph) what happens to the IS and/or LM curves. Show on a different graph what happens on the AS-AD diagram in the short-run (drawing in the...
1. An above-full-employment equilibrium occurs when Group of answer choices aggregate demand decreases while neither the short-run nor long-run aggregate supply changes. short-run aggregate supply decreases while neither aggregate demand nor long-run aggregate supply changes. the equilibrium level of real GDP is greater than potential GDP. the equilibrium level of real GDP is less than potential GDP. 2. Which of the following shifts the aggregate demand curve rightward? Group of answer choices a decrease in consumption an increase in investment...
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?
Given a downward-sloping aggregate demand (AD) curve and an upward-sloping short-run aggregate supply curve (SRAS), equilibrium occurs where the two intersect. The value on the vertical axis is the equilibrium price level and the value on the horizontal axis is the equilibrium value of real GDP or output. What happens to the economy when AD shifts? It is useful to sketch a graph and show the shift. Suppose, for example, interest rates fall or wealth increases due to a stock...
7) An increase in the price level will A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) move the economy up along the aggregate demand curve. D) move the economy down along the aggregate demand curve. 8) Expansionary monetary policy involves A) reducing money supply and lowering taxes B) increasing money supply to decrease interest rate C) increasing government spending and cutting money supply D) increasing the interest rate and increasing taxes 9) Long-run macroeconomic equilibrium occurs when A) aggregate demand...
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)...
Short-run macroeconomic equilibrium occurs when: aggregate demand and short-run aggregate supply intersect. the equilibrium lies on the long-run supply curve. the price level is constant in the short run. The two criteria – that aggregate demand and short-run aggregate supply intersect, and that the equilibrium lies on the long-run supply curve – must both be satisfied