Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS) framework, discuss the short-run and long-run effects of a decrease in government expe...
- Suppose real output is initially at its full employment level.
Using Aggregate Demand (AD)—Aggregate Supply (AS) framework,
discuss the short-run and long-run effects of a decrease in
government expenditure on the price level, real output, nominal
wage rate and real wage rate under the following three alternative
assumptions:
- nominal wages are fully flexible
- nominal wages are relatively slow to adjust
- nominal wages are completely rigid.
Homework Answers
When expenditure decreases,supply of money in the market decreases and vice-versa both in short run as well as long run.So people will have less money to spend as AD will decreases in comparison to AS.and price of goods will rise.
Due to decreased government expenditure in the short run there will no effect on the real output but in the long run the real output will decrease.there will be also decrease in the nominal wage rate in the short run and in the long run but there will be no effect on real wage rate in the short run but real wage rate will increase in long run .
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Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS) framework, discuss the short-run and long-run effects of a decrease in government expe...
Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS)...
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The figure below depicts the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A.
The figure below depicts the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A.One of the most contentious issues among economists involves the economy’s adjustment to long-run equilibrium. Some economists believe that adjustment can and should occur naturally. This group, the classical economists, stress the importance of aggregate supply. Others see the return to long-run equilibrium as an...
Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves
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The figure below depicts the aggregate demand curve (AD) and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A.
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3. Consider the following Aggregate supply: where yn is a natural level of output, and w...
3. Consider the following Aggregate supply: where yn is a natural level of output, and w is nominal wage rate. A. Suppose that the wage rate is flexible and adjust fully to any change in price level such that p-w.. Derive AS curve and explain. B. Suppose that wage rate is fixed at What does AS curve look like? C. Using AD curve derived in Question 1. D, calculate the equilibrium price and output level when wage is fully flexible....
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
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I. The economy of Zarland is operating below the full-employment level of output with a balanced budget. (a) Draw a correctly labeled graph of short-run aggregate supply, long-run aggregate supply, a...
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Assume that the following graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $5 trillion of real output is produced. The economy is currently in equilibrium at point A. 260 AS, 240 AS2 220 200 Price Level (average price) 180 160 AD2 140 120 ADA 100 0 2 3 7 8 Real Output (in trillions per year) Instructions: For parts (a) and (b) enter your answer rounded to the nearest whole number (a) What is...
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...
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Long run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the maintain full employment changes in step with the price level to O A. money wage rate OB. quantity of money OC. real wage rate OD. interest rate supplied and the when the money wage rate, the prices of other resources and Short run aggregate supply is the relationship between the quantity of potential GDP remain constant O A real GDP...
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