Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy’s potential (full-employment) level of output. Next, suppose that the price level rises from 120 to 130. 130.Price level160150140130120110100AS3 AS 2AS 190810 830 850 870 890 910 930 950Real output (dollars) Instructions: Enter your answers as a whole number.a. By how much will real output increase in the short run?$In the long run?b. Instead, now assume that the price level drops from 120 to 110. Assuming flexible product and resource prices, by how much will realoutput fall in the short run?In the long run?c. What is the long-run level of output at each of the three price levels shown?LA

The short-run aggregate supply refers to the total supply of all goods and services produced in an…

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.

130.
Price level
160
150
140
130
120
110
100
AS3 AS 2
AS 1
90
810 830 850 870 890 910 930 950
Real output (dollars)

Instructions: Enter your answers as a whole number.
a. By how much will real output increase in the short run?
$
In the long run?
b. Instead, now assume that the price level drops from 120 to 110. Assuming flexible product and resource prices, by how much will real
output fall in the short run?
In the long run?
c. What is the long-run level of output at each of the three price levels shown?
LA

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