Price Level b Multiple Choice O AS Real Domestic Output O U a Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD₁ to AD2 will AD₂ AD₁ move the economy from a to b to c. move the economy directly from a to c. move the economy from a to a new equilibrium at b. shift the AS curve to the right.

Price Level b Multiple Choice O AS Real Domestic Output O U a Refer to the diagram. Rational expectations theory says that a fully anticipated shift in aggregate demand from AD₁ to AD2 will AD₂ AD₁ move the economy from a to b to c. move the economy directly from a to c. move the economy from a to a new equilibrium at b. shift the AS curve to the right.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter10: Bringing In The Supply Side: Unemployment And Inflation?

Section: Chapter Questions

Problem 1DQ

See similar textbooks

Similar questions

Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.") Price Level Pn Pi Pk ADK AD Yk ADn Ek Keynesian zone Real GDP Ei LRAS En SRAS Neoclassical zone Intermediate zone Yi Yn Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the SRAS curve, small shifts in AD, elther to the right or the left, will affect the output level Yk, but will not much affect the price level. In the Keyneslan zone, AD largely determines the quantity of output. Near the equilibrium En. In the neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to the right or the left, will have relatively little effect on the output level Yn, but Instead will have a greater effect on the price level. In the neoclassical zone, the near-vertical SRAS curve close to the level of potential GDP largely determines the…
Which of the following shifts aggregate demand to the left? Select one: a. an increase in imports Ob. a decrease in taxes c. None of the other choices are correct O d. a decrease in interest rates O e. an increase in exports
Explain whether each of the following events shiftsthe short-run aggregate-supply curve, the aggregatedemand curve, both, or neither. For each event thatdoes shift a curve, draw a diagram to illustrate theeffect on the economy.a. Households decide to save a larger share of theirincome.b. Florida orange groves suffer a prolonged period ofbelow-freezing temperatures.c. Increased job opportunities overseas cause manypeople to leave the country.
Consider an economy with the following aggregate demand (AD) and aggregate supply (AS) schedules. These schedules reflect the fact that, prior to the period we're examining, deci- sion makers entered into contracts and made choices antici- 105* pating that the price level would be P. SRAS 105 (IN TRILLIONS) AD105 PRICE LEVEL (In TRILLIONS) 95 $3.5 $5.1 4.9 100 3.8 4.7 105 4.2 4.5 110 4.5 4.3 115 4.8 a. Indicate the quantity of GDP that will be produced and the price level that will emerge during this period. b. Is the economy in long-run equilibrium? Why or why not? c. How will the unemployment rate during the current period compare with this economy's natural rate of unemployment?
1. When the federal government engages in COVID-19 fiscal stimulus such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act this will affect the AD-AS model by: Group of answer choices a. Decreasing aggregate demand (AD). b. Increasing aggregate demand (AD). c. Decreasing aggregate supply (AS). d. Increasing aggregate supply (AS).
The following graph shows aggregate demand and short-run aggregate supply. 1.) Use the line drawing tool to show the effect of expectations of an increase in the future price level Properly label this line. 2.) Use the point drawing tool to show the new equilibrium price level and real GDP Label this point 'B' Carefully follow the instructions above, and only draw the required objects. Price level Po A Real GDP (Y) SRAS ADO
options:a contractionary fiscala contractionary monetarya recessionaryan expansionary fiscalan expansionary monetary an inflationaryequal to greater thangrew inflationless thanrecededthe same asunemployment
Theshortrunaggregatesupplycurvewasconstructedassumingthatasthepriceofoutputsincreases,thepriceof inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?
ון רבSuip Reset the graph and click on the blue square to apply a negative supply shock the the economy. Then adjust the movable point to view the effects of potential policy responses to the negative supply shock. Use what you observe to answer the questions that follow. a. In response to the effects of a negative supply shock, policymakers decide to decrease aggregate demand. What are the effects of this choice? O an increase in aggregate output, and an increase in the aggregate price level an decrease in aggregate output, and an decrease in the aggregate price level an increase in aggregate output, and an decrease in the aggregate price level an decrease in aggregate output, and an increase in the aggregate price level b. What are the overall tradeoffs with regard to this choice? Policymakers have chosen to fight inflation by increasing AD, but this further reduces aggregate output and makes the recession worse. Policymakers have chosen to fight inflation by decreasing AD, but this…
befoe y ee nd My a PRAS P feyr Output Reset In 6-2 we studied how unantioipated infation might affect the supply of goods and services in the economy and construced the shon-un aggregate supply ourve The interactive above shows how the SRAS curve changes at different levels of price fexibility. R is helptu in anowering the tulowing questions According to the SRAS curve, f prices are prefecty fexible O Unexpected changes in the price level wil have a large effect on output. O Unexpected changes in the price level will have no etfect on output O Unexpected changes in tme price level will have some etfect on output O None of these Inflation rate
When the economy is experiencing a recession, why would aneoclassical e conomist be unlikely toargue for aggressive policy to stimulate aggregate demandand return the economy to full employment? Explain your answer.
The aggregate demand curve slopes downward because whenthe price level is lower, people can afford to buy more andaggregate demand rises. When prices rise, people can afford tobuy less and aggregate demand falls. Is this a good explanationof the shape of the AD curve? Why or why not?