P3 N° Price Level A Po 0 FIGURE 29-1 E3 E2 N E1 Eo Y" Real GDP AS3 AS₂ AS₁ Select one: O a an annual shift upward of the AS curve by 3%. Ob. an annual increase in the inflation rate of 3%. O c. an annual shift upward of the AD curve by 3%. O d. an annual increase in the equilibrium price level of 3%. e. Not applicable. Th ASO AD3 AD₂ AD1 ADO Refer to Figure 29-1. A constant rate of inflation of 3% is portrayed in an AD/AS diagram like this one as
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- How is pressure for inflationary price increases shown in an AD/AS model?How is long-term growth illustrated in an AD/AS model?Many financial analysts and economists eagerly await the press releases for the reports on the home price index and consumer confidence index. What would be the effects of a negative report on both of these? What about a positive report?
- The short run aggregate supply curve was constructed assuming that as the price of outputs increases, the puce of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?Suppose, initially the Australian economy is atfull employment(in other words the economy is atthe potentialGDP). Using AD-AS model, explain how would each of the following events aectthe economy both in theimmediate and in the long term.a) A slowdown in China’s economic growth due to the sub-prime crisis in the US.b) Union wage settlements push the wage rate up.c) An increase in consumer confidence.Suppose an economy's macro equilibrium is such that a shift in either AD or AS (or both) to the right is desired. From this we can conclude that the economy may be experiencing O wartime production O economic growth O excess demand O unemployment
- Which of the following will NOT shift the AD curve? O a. Changes in consumer confidence O b. Changes in autonomous exports O c. Changes in government expenditure O d. Changes in the inflation rate ?1. Which of the following could cause a shift from AD to AD₁, ceteris paribus? PRICE LEVEL a a Figure 10.1 REAL OUTPUT ($ billions per year) B) an increase in exports A) a decrease in investment AD OC) an increase in consumer confidence OD) an increase in consumption AS 4Suppose Chino is a closed economy. A large portion of the work force has joint astrong labor union. As such, the nominal wages of most workers are downwardrigid.Suppose most households lose their wealth in a recent clash of the stock market.How would the price and output level of Chino be affected in the short run?Explain by using the AD-AS model. Particularly, use the sticky-wage model ofaggregate supply to explain the magnitude of the effects on price and output.
- 6.1.What is an AD-AS model and what does such a model as per the givendiagram essentially focus on?6.2.Discuss the diagram in detail by first explaining what leads to step Step 1(representing a shift in curves on the diagram) and indicating what occursto cause shifts in some of the curves. Then discuss Step 2 (whichrepresents other macroeconomic changes) and indicate what happens toother variables when there are shifts in some of the curves as per Step 1. 6.3.What, in general, do the points of intersection between the AS and AS2curves and the AD curve show?6.4.When the LAS curve moves to the right to LRAS2, what exactly do thepoints of intersection between the AS and AS curves and the AD1 curve,indicated as point 1 and point 2, reflect on the diagram?The imaginary country of Harris Island has theaggregate supply and aggregate demand curves as Table24.3 shows. a. Plot the AD/AS diagram. Identify theequilibrium.b. Would you expect unemployment in thiseconomy to be relatively high or low?c. Would you expect concern about inflation in thiseconomy to be relatively high or low?d. Imagine that consumers begin to lose confidenceabout the state of the economy, and so ADbecomes lower by 275 at every price level.Identify the new aggregate equilibrium.e. How will the shift in AD affect the originaloutput, price level, and employment?2. Suppose that a presidential candidate who promised large personal income tax cuts is elected. Use the AD-AS model to predict short-run changes in real GDP and the aggregate price level. Aggregate price level ESR PE SRAS Short-run macroeconomic equilibrium AD YE Real GDP