2. Suppose incomes in Europe increase, causing an increase in demand for U.S.-produced goods and servicesthat are exported to Europe.(a) Describe and illustrate the short-run effects on the price level, real GDP, and employment.2(b) Assuming government does not intervene to fix the problem, describe and illustrate the impact onthe price level, real GDP, employment, and wages in the long-run.HINT: To answer this question, begin your answer with the graphs in your answer to part (a) (justduplicate your graples in the answer to (a)). Then add to these graphs the long-run effects.(e) Given the state of the economy in the short-run (answer to problem (a)), suggest a change intaxes to reverse the problem without waiting for convergence to long-run equilibrium. Illustratethe short-run impact of this policy on price level, real GDP, and employment. Compared to theoriginal long-run equilibrium, what happened to the price level and real GDP as a consequence ofyour government policy?IIINT: To answer this question, begin your answer with the graphs in your answer to part (a) (justduplicate your graphs in the answer to (a)). Then add to these graphs the long-run effects.

Answered: Image /qna-images/answer/ac9e1fda-24ae-45f2-bb01-fcffaba6b242.jpg

Answered: 2. Suppose incomes in Europe increase,…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 10PA

See similar textbooks

Similar questions

Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy's potential (full-employment) level of output. Next, suppose that the price level rises from 120 to 130. 160 AS, AS, 150 AS, 140 130 120 110 100 90 810 830 850 870 890 910 930 950 Real output (dollars) Activate Wi Price level
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how 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 and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by 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 the natural level of output in…
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how 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 and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by 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 the natural level of output in…
Price level (GDP price index, 2012 = 100) Potential Potential GDP, AS, GDP2 AS2 Real GDP (trillions of 2012 dollars)
"Fracking" is a relatively new technology that allows drillers to extract significantly larger quantities of natural gas from existing deposits than was previously possible. How is this discovery likely to affect the economy? (Hint: Think about whether this will have a short-run or long-run effect.) This discovery will likely: O increase both SRAS and LRAS, leading to a long-term increase in output and decrease in prices. O increase AD but decrease both SRAS and LRAS, leading to an uncertain change in long- term output and a decrease in prices. decrease both SRAS and LRAS, leading to a long-term decrease in output and increase in prices. O increase AD, SRAS, and LRAS, leading to a long-term increase in output and an uncertain change in prices.
The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD¡ to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, wwhere previously it was $300 billion. 170 100 150 140 130 120 AD2 110 AD, 100 00 + 100 200 300 400 500 00 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. Complete the table by indicating the change needed in each determinant to increase aggregate demand. Change Needed to Increase AD Wealth Тахes Expected rate of return on investment Incomes in other countries PRICE LEVEL
6. Why the aggregate supply curve slopes upward in the short run 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 sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will ▼, and firms that rely on catalogs will respond by ▼ the quantity of output they supply. If enough firms face high costs of adjusting prices, the…
6. Why the aggregate supply curve slopes upward in the short run 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 sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will ▼, and firms that rely on catalogs will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the…
Question 6 According to the Real Business Cycle, an increase in government spending Shifts the long-run supply to the right O Increases price without any effect on output O Increases output without any effect on price O Increases both price and output
Which of the following would the employment level rise to in the short run? Select one: O O a. An increase in government spending. b. The minimum wage increases. c. A negative supply shock.[KA1] [KA1] edited this question as it seemed unclear to me. Would you please address this question and answers? A
The economy is in long run equilibrium. Congress’s passage of new laws significantly increasing the regulation of business. It is assumed that everything else stays constant. What do we expect in aggregate demand, short run aggregate supply aggregate supply in short run? And what happens in long run, and long run equilibrium price level and output? Explicitly state what happens to equilibrium price level and output in both short run and long run and how economy corrects from short run to long run.
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-wage theory asserts that output prices adjust more quickly to changes in the price level than wages do, in part because of long-term wage contracts. Suppose a firm signs a contract agreeing to pay its workers $15 per hour for the next year, based on an expected price level of 100. If the actual price level turns out to be 90, the firm's output prices will , and the wages the firm pays its workers will remain fixed at the contracted level. The firm will respond to the unexpected decrease in the price level by v the quantity of output it supplies. If many firms face similarly rigid wage contracts, the unexpected decrease in the price level causes the quantity of output…

SEE MORE QUESTIONS

Recommended textbooks for you

Brief Principles of Macroeconomics (MindTap Cours…

Economics

ISBN:

9781337091985

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

Principles of Economics, 7th Edition (MindTap Cou…

Economics

ISBN:

9781285165875

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Brief Principles of Macroeconomics (MindTap Cours…

Economics

ISBN:

9781337091985

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

Principles of Economics, 7th Edition (MindTap Cou…

Economics

ISBN:

9781285165875

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Macroeconomics (MindTap Course List)

Economics

ISBN:

9781305971509

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Essentials of Economics (MindTap Course List)

Economics

ISBN:

9781337091992

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS