If the economy begins at long-run equilibrium at potential output when a negative aggregate demand shock occurs, l initially there will be a ____________________ equilibrium because prices are _____________ in the short run.
a. new long-run equilibrium below potential output, sticky
b.new short-run equilibrium below potential output, sticky
c.new short-run equilibrium above potential output, sticky
d.new short-run equilibrium below potential output, flexible
Initially there will be new short run equilibrium in the market that will be below potential output because prices are sticky in the shor turn, The answer is "B", if they were not sticky they would have just reduced the price at the same level of output.
If the economy begins at long-run equilibrium at potential output when a negative aggregate demand shock occurs, l initi...
If the economy begins at long-run equilibrium at potential output when a negative aggregate demand shock occurs,l initially there will be a ____________________ equilibrium because prices are _____________ in the short run. a. new long-run equilibrium below potential output, sticky b. new short-run equilibrium below potential output, sticky c. new short-run equilibrium above potential output, sticky d. new short-run equilibrium below potential output, flexible
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.
2.When a negative aggregate demand shock occurs and creates a short-run recessionary equilibrium, a. eventually wages and prices will fall and move the economy back to potential output b. the government could increase spending and/or lower taxes to move the economy back toward potential output c. the Federal Reserve could lower interest rates to move the economy back toward potential output d. all of the above 3. If the unemployment rate were 6% and the Federal Reserve believed that structural...
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)...
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)
()-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 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...
1. Which of the following is not a property of the aggregate demand curve? It shows the relationship between the overall price level and level consumption. It shows the price level on the vertical axis and output on the horizontal axis. The aggregate demand curve slopes downward. It shows the relationship between the overall price level and the level of total demand. 2. When the price level increases people: feel more wealthy. have the same real value of assets, regardless...
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
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.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, stresses the importance of aggregate supply. Others see the return to long-run equilibrium as an adjustment that occurs unpredictably and often...