The misperceptions theory says lower prices gives wrong impression to suppliers about relative prices so that they reduce output. The sticky wage theory says that wages don't fall for some time as price falls. This means real wages rise which force producers to reduce output. The sticky price theory says that prices of some firms don't fall immediately as prices fall due to their sticky nature. Hence producers reduce output as they face less demand
2 SRAS shifts leftwards to SRASo. As a result prices and unemployment rise. See fig
3 AD fell to ADo so that there was shortage of demand which reduced output and prices
Potential GDP Price Level SRAS 115 100 90 AD RGDP in trillions 15 17 What are the three theories that are used to explain the upward sloping SRAS? a. b. What changes would you make to the graph above...
The AD-AS Model of the Economy Potential GDP Price Level 115 100 90 AD RGDP in trillions 15 17 What effect would a decrease in the money supply have in the graph above? How would the decrease in the money supply impact the government budget?
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...
econ LRAS, SRAS, SRAS SRAS Pnce Level Real GDP per Year 12) Refer to the graph above. At point E3, the economy is experiencing A) recessionary gap B) stagflation C) inflationary gap D) full economy 13) From the point in question 12, what needs to be done using Aggregate Supply to get back to full employment? A) Decrease government spending B) Fed. to sell government bonds C) Produce more petroleum D) Decrease laborers 14) From the point in question 12,...