1. List and also explain the three factors the aggregate-demand curve is bottom sloping.
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The aggregate-demand curve is bottom sloping because: (1) a diminish in the price level makes consumers feeling wealthier, i beg your pardon in turn urges them to spend more, so there is a larger quantity of goods and services demanded; (2) a lower price level reduce the attention rate, encouraging greater spending top top investment, so there is a bigger quantity that goods and also services demanded; (3) a autumn in the U.S. Price level reasons U.S. Interest rates to fall, for this reason the genuine exchange price depreciates, stimulating U.S. Network exports, so there is a bigger quantity of goods and services demanded.
2. Explain why the long-run aggregate-supply curve is vertical
The long-run accumulation supply curve is vertical since in the long run, an economy's supply of goods and also services depends on its offers of capital, labor, and natural resources and on the obtainable production technology used to revolve these resources into goods and services. The price level go not affect these long-run factors of genuine GDP.
3. What might transition the aggregate-demand curve come the left? usage the version of aggregate demand and aggregate supply to trace with the short-run and long-run results of together a transition on output and the price level
The aggregate-demand curve might change to the left as soon as something (other than a increase in the price level) reasons a reduction in usage spending (such together a desire for raised saving), a reduction in invest spending (such as boosted taxes on the return to investment), lessened government security (such as a cutback in defense spending), or diminished net exports (such as once foreign economic climates go into recession).
The figure listed below traces through the actions of together a transition in accumulation demand. The economy begins in equilibrium, with short-run accumulation supply, AS1, intersecting aggregate demand, AD1, at suggest A. As soon as the aggregate-demand curve shifts to the left toAD2, the economy moves from point A to allude B, reduce the price level and the quantity of output. Over time, people readjust their perceptions, wages, and prices, changing the short-run aggregate-supply curve under to AS2, and moving the economic climate from allude B to point C, i m sorry is ago on the long-run aggregate-supply curve and has a lower price level.
4. What might shift the aggregate-supply curve come the left? usage the model of accumulation demand and aggregate supply to trace through the short-run and also long-run effects of together a shift on output and also the price level
The aggregate-supply curve might shift to the left due to the fact that of a decrease in the economy's capital stock, job supply, or productivity, or an increase in the organic rate the unemployment, every one of which shift both the long-run and short-run aggregate-supply curves to the left. Boost in the intended price level shifts just the short-run aggregate-supply curve (not the long-run aggregate-supply curve) come the left.
The figure listed below traces with the effects of a transition in short-run aggregate supply. The economic situation starts in equilibrium at suggest A. The aggregate-supply curve shifts to the left from AS1 toAS2. The brand-new equilibrium is at allude B, the intersection the the aggregate-demand curve andAS2. Together time go on, perceptions and expectations change and the economic situation returns come long-run equilibrium at suggest A, due to the fact that the short-run aggregate-supply curve shifts ago to its initial position.
5.Suppose the economy is in a long-run equilibrium
a.Draw a diagram to illustrate the state of the economy. Be certain to show accumulation demand, short-run accumulation supply, and long-run aggregate supply.
b.Now suppose that a stock-market crash causes aggregate demand to fall. Usage your chart to display what happens to output and price level in the short run. What wake up to the joblessness rate?
A stock sector crash leader to a leftward transition of aggregate demand. The equilibrium level that output and the price level will fall. Because the amount of calculation is much less than the natural rate the output, the unemployment rate will rise above the natural rate of unemployment.
c.Use the sticky-wage concept of accumulation supply to define what will happen to output and also the price level in the long run (assuming over there is no change in policy). What duty does the supposed price level beat in this adjustment? Be sure to highlight your evaluation in a graph.
If in the name wages room unchanged as the price level falls, firms will certainly be compelled to cut earlier on employment and also production. Over time as expectations adjust, the short-run aggregate-supply curve will change to the right, moving the economy ago to the natural rate that output.
6.Explain whether every of the following events will increase, decrease, or have actually no effect on short-run aggregate supply. Show your answer with a AD/AS graph and show the SR equilibrium.
a.The United states experiences a wave of immigration
When the United states experiences a wave of immigration, the labor pressure increases, for this reason long-run aggregate supply move to the right.
b.Congress raises the minimum wage to $10 every hour
When congress raises the minimum wage to $10 per hour, the organic rate of unemployment rises, for this reason the long-run aggregate-supply curve shifts to the left.
c.Intel invents a new and much more powerful computer system chip
When Intel invents a new and an ext powerful computer system chip, productivity increases, therefore long-run accumulation supply increases because an ext output have the right to be created with the very same inputs.
d.A serious hurricane loss factories lengthy the eastern Coast.
When a significant hurricane damages factories follow me the east Coast, the resources stock is smaller, so long-run accumulation supply declines.
7.In 1939, the U.S. Economy not yet completely recovered from the great Depression, chairman Roosevelt proclaimed that Thanksgiving would autumn a week previously than usual so the the shopping period before Christmas would be longer. Describe what president Roosevelt could have to be trying come achieve, utilizing the design of aggregate demand and accumulation supply.
The idea the lengthening the shopping duration between Thanksgiving and Christmas was to increase accumulation demand. This might increase output back to that is long-run equilibrium level
8.Explain why the adhering to statements are false.
a.“The aggregate-demand curve slopes under ward due to the fact that it is the horizontal amount of the need curves because that individual goods.”
The statement that "the aggregate-demand curve slopes downward because it is the horizontal amount of the demand curves for individual goods" is false. The aggregate-demand curve slopes downward because a fall in the price level raises the in its entirety quantity that goods and services demanded through the wealth effect, the interest-rate effect, and the exchange-rate effect.
b.“The long-run aggregate-supply curve is vertical because economic forces do not influence long-run aggregate supply.”
The statement that "the long-run aggregate-supply curve is vertical due to the fact that economic pressures do not influence long-run aggregate supply" is false. Economic forces of assorted kinds (such as populace and productivity) do influence long-run aggregate supply. The long-run aggregate-supply curve is vertical because the price level walk not impact long-run aggregate supply.
c.“If firms adjusted their price every day, then the short-run aggregate-supply curve would certainly be horizontal.”
The statement that "if firms adjusted their price every day, climate the short-run aggregate-supply curve would certainly be horizontal" is false. If firms readjusted prices quickly and if difficult prices were the only feasible cause for the increase slope of the short-run aggregate-supply curve, climate the short-run aggregate-supply curve would be vertical, no horizontal. The short-run aggregate supply curve would certainly be horizontal just if price were fully fixed.
d.“Whenever the economy enters a recession, its long-run aggregate-supply curve shifts to the left.”
The statement the "whenever the economic situation enters a recession, that long-run aggregate-supply curve shifts to the left" is false. An economy could enter a recession if either the aggregate-demand curve or the short-run aggregate-supply curve shifts to the left.
9.Suppose the the economic climate is at this time in a recession. If policymakers the no action, how will the economy readjust over time? describe in words and using one aggregate-demand/aggregate-supply diagram.
The figure below depicts an economic climate in a recession. The short-run aggregate-supply curve isAS1 and also the economy is at equilibrium at allude A, i m sorry is to the left that the long-run aggregate-supply curve. If policymakers take it no action, the economic situation will return to the long-run aggregate-supply curve in time as the short-run aggregate-supply curve move to the appropriate to AS2. The economy's brand-new equilibrium is at point B.
10.For each of the following events, explain the short-run and also long-run effects on output and the price level, suspect policymakers take no actions. Illustrate your answers in both the 3-graph framework and also the AD/AS framework
a.The share market decreases sharply, reducing consumers’ wealth.
When the share market declines sharply, riches declines, so the aggregate-demand curve move to the left, as presented in Figure. In the brief run, the economic situation moves from point A to point B, as output declines and the price level declines. In the lengthy run, the short-run aggregate-supply curve shifts to the ideal to restore equilibrium at allude C, through unchanged output and a reduced price level compared to suggest A.
b.The federal federal government increases security on national defense.
When the federal federal government increases security on national defense, the rise in federal government purchases shifts the aggregate-demand curve come the right, as displayed in the figure. In the brief run, the economic climate moves from suggest A to allude B, as output and the price level rise. In the long run, the short-run aggregate-supply curve shifts to the left to gain back equilibrium at allude C, through unchanged output and also a higher price level contrasted to suggest A.
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c.A technological improvement raises efficiency
When a technological improvement raises productivity, the long-run and short-run aggregate-supply curves transition to the right, as presented in the figure. The economic situation moves from allude A to allude B, as output rises and the price level declines.
d.A recession overseas reasons foreigners to buy fewer U.S. Goods.
When a recession overseas reasons foreigners come buy under U.S. Goods, network exports decline, so the aggregate-demand curve move to the left, as shown in the figure. In the brief run, the economic climate moves from point A to point B, as calculation declines and also the price level declines. In the long run, the short-run aggregate-supply curve shifts to the best to reclaim equilibrium at suggest C, v unchanged output and also a reduced price level compared to suggest A.