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The following events have occurred in the history of the United States:
- A deep recession hits the world economy.
- The world oil price rises sharply.
- S. businesses expect future profits to fall.
- Explain the separate effects of each event on U.S. real
GDP and the price level, starting from a position of long-run equilibrium.
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- In the long-run, aggregate supply is a horizontal line at the long-run price level people can afford. True False One reason for why the aggregate demand curve slopes down is the wealth effect, which means that a higher price level leads to lower real wealth and, thereby, reduces the level of consumption. True FalseSuppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and services. How the U.S. price level and real GDP will change in the short run?The following events have occurred in the history of the United States: A deep recession hits the world economy. The world oil price rises sharply. U.S. businesses expect future profits to fall. Explain the combined effects of these events on U.S. real GDP and the price level,starting from a position of long-run equilibrium.
- The short-run quantity of output supplied by firms will exceed the natural level of output when the actual price level ———-that people expected.The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 95. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 85, 90, 95, 100, and 105. PRICE LEVEL 125 120 115 110 105 100 95 90 85 80 75 0 10 20 40 50 60 70 30 OUTPUT (Billions of dollars) 80 90 100 O AS LRAS ? The short-run quantity of output supplied by firms will fall short of the natural level of output when the actual price level level that…Suppose that M = 2000 and that k = 2. What is the price level P at which the economy is in long-run- equilibrium? Plot such an equilibrium on a diagram with P on the vertical axis and Y on the horizontal axis, by distinguishing between the short-run and the long-run equilibrium.
- If aggregate supply is vertical, then which of the following statements must be true? Aggregate demand does not affect the quantity of output. Inflation creates greater social benefits. Inflation will accompany any rise in output. Aggregate demand does not cause inflationary changes in price level.Assume that the United States economy is currently in a recession in a short-run equilibrium. Draw a correctly labeled graph of aggregate demand and aggregate supply in the recession and show each of the following. The current equilibrium output and price levels, labeled Ye and PLe, respectively.Discuss about the three time horizons and what is the difference between the immediate short-run (ISR) and the short-run (SR) aggregate supply? a) In the immediate short run (IMR), ( input, output, both input & output ) prices are fixed, and the aggregate supply curve is ( upward sloping, downward sloping, horizontal , vertical ), and firms collectively supply exactly the level of output demanded at any given price level. b) In the short run (SR), ( input, output, both input & output ) prices are fixed or nearly fixed, and the aggregate supply curve is ( upward sloping, downward sloping, horizontal , vertical ) This is because nominal wages and input prices adjust only slowly to changes in the price level. With this curve, an increase in the price level increases real output and a decrease in the price level reduces real output. c) In the long run, all prices are ( fixed, flexible ) and the aggregate supply curve is ( upward sloping, downward sloping, horizontal, vertical ) at the…
- Assume that the economy is currently in short-rim equilibrium Use words and diagrams to describe what will happen to equilibrium price and equilibrium output in the following two cases. An increase in foreign real national (2.S) A flood in the country (2.5)In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will (decrease/not change/increase) , and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by (raising/lowering) the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to (fall short of/exceed) the…The figure shown displays various economic outcomes. P₁ P₂ P3 PA Ps LRAS AD₁ SRAS₁ SRAS₂ SRAS3 AD3 AD₂ 글 E If the aggregate demand (AD) curve shifts from AD₁ to AD2, the resulting equilibrium price and output in the long run would be: