The graph below shows an economy in long-run equilibrium. Suppose that aggregate demand unexpectedly increases so that theshort-run equilibrium real GDP increases above $80 billion.a. Using the AD-AS graph below, demonstrate the new price level and long-run equilibrium real GDP that will result assume that thenew classical view of a self-correcting economy is accurate.Instructions: Use the tools provided 'AD2' and 'AS2' to plot AD and AS after the increase in aggregate demand and the economy'sself-correction. Then use the tool provided 'e2' to indicate the new long-run equilibrium point.Price level1301201101009080AS240AS LR80120AD₁AS₁AD2160Real domestic output (billions of dollars)200ToolsAD2AS2Ⓡ

In the new classical economics, there is self correcting tendency in the economy. The equilibrium…

Instructions: Use the tools provided 'AD2' and 'AS2' to plot AD and AS after the increase in aggregate demand and the economy's self-correction. Then use the tool provided 'e2' to indicate the new long-run equilibrium point.

Instructions: Use the tools provided 'AD2' and 'AS2' to plot AD and AS after the increase in aggregate demand and the economy's self-correction. Then use the tool provided 'e2' to indicate the new long-run equilibrium point.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section: Chapter Questions

Problem 3TY

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Question

The graph below shows an economy in long-run equilibrium. Suppose that aggregate demand unexpectedly increases so that the
short-run equilibrium real GDP increases above $80 billion.
a. Using the AD-AS graph below, demonstrate the new price level and long-run equilibrium real GDP that will result assume that the
new classical view of a self-correcting economy is accurate.
Instructions: Use the tools provided 'AD2' and 'AS2' to plot AD and AS after the increase in aggregate demand and the economy's
self-correction. Then use the tool provided 'e2' to indicate the new long-run equilibrium point.
Price level
130
120
110
100
90
80
AS2
40
AS LR
80
120
AD₁
AS₁
AD2
160
Real domestic output (billions of dollars)
200
Tools
AD2
AS2
Ⓡ

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The graph below shows an economy in long-run equilibrium. Suppose that aggregate demand unexpectedly increases so that the short-run equilibrium real GDP increases above $80 billion. a. Using the AD AS graph below, demonstrate the new price level and long-run equilibrium real GDP that will result, assuming that the new classical view of a self-correcting economy is accurate. Instructions: Use the tools provided 'AD2' and 'AS2' to plot AD and AS after the increase in aggregate demand and the economy's self-correction. Price level 130 120 110 100 90 80 AS AD₁ AS Tools AD₂
A4 Imagine that in the year 2035, Japan’s economy shrinks significantly, causing a decrease in investment in the U.S. economy. Use the ADAS model to explain the likely short run impacts on U.S. GDP and the aggregate price level. What do you anticipate to happen to U.S. consumption expenditures and U.S. employment? Explain your reasoning for each of your predictions and show graphically as appropriate. Students may utilize Paint, Word (the shapes tool under Insert), OneNote (Draw tab), or hand draw the graphs.
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?
Comparing ModelsWhat are the differences between our Keynesian Cross and the Macro Equilibrium (AS and AD) diagram? Which model has more to offer?
Consider the AD/AS model. In the long run, after factor prices have fully adjusted to any output gaps, real GDP A. and the price level are determined by "long-run aggregate supply." B. and the price level are determined by aggregate demand. C. is determined by potential output and the price level by aggregate demand. D. is determined by aggregate demand and the price level by potential output. E. is determined by AD and the price level is determined by the AS curve.
Considering the growing potential threat of terrorists’ attacks worldwide, the President of an economyapproved a fiscal spending of $24 billion to upgrade its national defense. a. Starting in a long-run equilibrium, draw a well-labelled AD-SRAS-LRAS diagram for the economy. b. Use the same diagram in part (a) to show the SR effect on the economy’s GDP (Y), the price level, andunemployment when the federal government increases its spending on national defense. c. To stabilize the price level and the economy’s GDP, what kind of monetary policy should the economyadopt? Illustrate your answer in the same diagram in (a).
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 ?