Consider an economy that begins with real GDP equal to potential GDP. There is then a...
Consider an economy that begins with real GDP equal to potential GDP. There is then a sudden increase in the prices of raw materials, which shifts the aggregate supply (AS)curve upward.
a. Draw the initial long run equilibrium in an AD/AS diagram.
b. Now show the immediate effect of the supply shock in your diagram.
c. Suppose wages and prices in this economy adjust instantly to shocks. Explain what happens to unemployment in this economy.
d. If wages and prices adjust only slowly to shocks what happens to unemployment? Explain.
e. Based on the evidence in the Canadian economy, which is the more realistic adjustment to the AS shock?
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Consider an economy that begins with real GDP equal to potential
GDP. There is then a...
Refer to the diagram that shows an ADIAS model fora hypothetical economy The economy begins in...
Refer to the diagram that shows an ADIAS model fora hypothetical economy The economy begins in long-run equilibrium at point A AS1 Following the positive AS shock shown in the diagram, the adjustment process will take the economy to a long-run equilibrium where the price level is AS2 and real GDP is O A. 100; 750 B. 70; 500 O C. 50; 850 O D. 50; 950 O E. 70; 750 100 . 70 50 AD 500 750 850 Real...
3. Consider an economy where current real GDP is equal to its potential level y'. (a)...
3. Consider an economy where current real GDP is equal to its potential level y'. (a) Suppose that as a result of uncertainty over the future of trade relations between Canada and China, investment by firms in Canada falls. Use an AD-AS diagram to illustrate the effect of this drop in investment in the Canadian economy. (b) In response to negative economic conditions created in part (a), households decide to increase their savings because they fear they may soon lose...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. Price Level - AD, -t-AD₂ 1250 700 800 900 1000 Real GDP C. Describe a plausible economic event (ie. Shock) that could have shifted the AD curve from AD1 to AD2? D. Please describe the adjustment process that would return the economy to its long-run equilibrium following the negative aggregate demand shock shown in the diagram.
Aggregate supply and demand problems For each scenario analyze the impacy of the “shocks” on the nation’s employment rate, real GDP, GDP gap anf price level. In addition illustrate the impact of...
Aggregate supply and demand problems
For
each scenario analyze the impacy of the “shocks” on the nation’s
employment rate, real GDP, GDP gap anf price level. In addition
illustrate the impact of each shock using an aggregate supply and
demand diagram. Finally, analyze the policy options available to
the government to offset the harmful impact of each of these
shocks.
UL uld wnen & bank becomes insolvent? Explain res B. Aggregate Supply and Demand Problem ur knowledge of aggregate supply...
Suppose the current level of real GDP for an economy is below its potential level of...
Suppose the current level of real GDP for an economy is below its potential level of RGDP. Starting with this situation, and in the absence of any government action, what should next happen in the AD-AS model? Group of answer choices A. A decrease in the Long-Run Aggregate Supply B. An increase in Aggregate Demand C. A decrease in Aggregate Demand D. An increase in the Short-Run Aggregate Supply E. An increase in the Long-Run Aggregate Supply F. A decrease...
Inflationary pressure in the AS-AD model can be shown as a leftward shift of the AD...
Inflationary pressure in the AS-AD model can be shown as a leftward shift of the AD curve when the economy is already producing at its potential GDP. supply shock that shifts the AS to the right. rightward shift of the AD curve when the economy is already producing at its potential GDP. Typically, if consumer and business confidence is high then ________ and if consumer and business confidence is low then ________. AD shifts to the left; AD shifts to...
Suppose the economy starts out in a long-run equilibrium at potential GDP.. Draw the economy’s short-run...
Suppose the economy starts out in a long-run equilibrium at potential GDP.. Draw the economy’s short-run and long-run Phillips curves in one graph an AS/AD diagram with potential GDP shown in a second graph. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagrams from part a). Can the government return the economy to its original inflation rate and original unemployment rate using fiscal policy? Now start over with the economy back...
9. Applying the extended AD-AS model Financial crises, such as the one that impacted many developed...
9. Applying the extended AD-AS model
Financial crises, such as the one that impacted many developed
countries starting in 2007, decrease banks’ ability and willingness
to make loans. Decreased availability of credit decreases
businesses’ ability to make investment purchases and consumers’
ability to buy goods and services. As a result, a financial crisis
is a negative shock for an economy.
The following graph shows an economy’s aggregate demand curve
and its short-run and long-run aggregate supply curves after a
financial...
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs....
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs. Long Run Aggregate Supply Draw the economy at full employment 1. In the short run, wages and resource prices will as price levels increase 2. In the long run, wages and resource prices will as price levels increase Shifters of AD and AS Shifters of Aggregate Demand Shifters of Aggregate Supply imi Recessionary Gap Draw an economy in a recession Inflationary Gap Draw an...
cam, the economy is in long- uilibrium at point E, when an 4. In the accomo...
cam, the economy is in long- uilibrium at point E, when an 4. In the accomo run macroes oil shock shifts th to SRAS. Bas, questions. ccompanying diagram, the economy acroeconomic equilibrium at pe hifts the short-run aggregate supply curve S.. Based on the diagram, answer the foll answer the following LRAS Aggregate price SRASZ level SRAS .. AD1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of...
Refer to the diagram that shows an ADIAS model fora hypothetical economy The economy begins in long-run equilibrium at point A AS1 Following the positive AS shock shown in the diagram, the adjustment process will take the economy to a long-run equilibrium where the price level is AS2 and real GDP is O A. 100; 750 B. 70; 500 O C. 50; 850 O D. 50; 950 O E. 70; 750 100 . 70 50 AD 500 750 850 Real...
3. Consider an economy where current real GDP is equal to its potential level y'. (a) Suppose that as a result of uncertainty over the future of trade relations between Canada and China, investment by firms in Canada falls. Use an AD-AS diagram to illustrate the effect of this drop in investment in the Canadian economy. (b) In response to negative economic conditions created in part (a), households decide to increase their savings because they fear they may soon lose...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. Price Level - AD, -t-AD₂ 1250 700 800 900 1000 Real GDP C. Describe a plausible economic event (ie. Shock) that could have shifted the AD curve from AD1 to AD2? D. Please describe the adjustment process that would return the economy to its long-run equilibrium following the negative aggregate demand shock shown in the diagram.
Aggregate supply and demand problems
For
each scenario analyze the impacy of the “shocks” on the nation’s
employment rate, real GDP, GDP gap anf price level. In addition
illustrate the impact of each shock using an aggregate supply and
demand diagram. Finally, analyze the policy options available to
the government to offset the harmful impact of each of these
shocks.
UL uld wnen & bank becomes insolvent? Explain res B. Aggregate Supply and Demand Problem ur knowledge of aggregate supply...
9. Applying the extended AD-AS model
Financial crises, such as the one that impacted many developed
countries starting in 2007, decrease banks’ ability and willingness
to make loans. Decreased availability of credit decreases
businesses’ ability to make investment purchases and consumers’
ability to buy goods and services. As a result, a financial crisis
is a negative shock for an economy.
The following graph shows an economy’s aggregate demand curve
and its short-run and long-run aggregate supply curves after a
financial...
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs. Long Run Aggregate Supply Draw the economy at full employment 1. In the short run, wages and resource prices will as price levels increase 2. In the long run, wages and resource prices will as price levels increase Shifters of AD and AS Shifters of Aggregate Demand Shifters of Aggregate Supply imi Recessionary Gap Draw an economy in a recession Inflationary Gap Draw an...
cam, the economy is in long- uilibrium at point E, when an 4. In the accomo run macroes oil shock shifts th to SRAS. Bas, questions. ccompanying diagram, the economy acroeconomic equilibrium at pe hifts the short-run aggregate supply curve S.. Based on the diagram, answer the foll answer the following LRAS Aggregate price SRASZ level SRAS .. AD1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of...
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