PRICE LEVEL (CPI) The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 150. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 150, but the actual price level turns out to be 100. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. 300 SRAS[150] 250 SRAS[150] 200 150 100 50 0 1 0 3 6 9 12 15 18 REAL GDP (Trillions of dollars) ? Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The lower-than-expected price level causes firms to earn profit than they expected on each unit of output they produce, and, therefore, they than workers and firms their production level. At the same time, the real value of wages and other resource prices is expected when they signed long-term contracts. As a result, the economy as a whole produces at a level the unemployment rate is than its natural rate. its full-employment output, and The lower-than-expected price level causes firms to earn profit than they expected on each unit of output they produce, and, therefore, they their production level. At the same time, the real value of wages and other resource prices is than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level the unemployment rate is than its natural rate. its full-employment output, and Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the long-run aggregate supply curve (LRAS) at full-employment output for this economy as well as the same initial short- run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. (?) PRICE LEVEL (CPI) 300 SRAS 250 LRAS 200 150 100 50 50 0 0 3 6 LRAS 9 12 REAL GDP (Trillions of dollars) 15 18: 18 SRAS

PRICE LEVEL (CPI) The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 150. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 150, but the actual price level turns out to be 100. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. 300 SRAS[150] 250 SRAS[150] 200 150 100 50 0 1 0 3 6 9 12 15 18 REAL GDP (Trillions of dollars) ? Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The lower-than-expected price level causes firms to earn profit than they expected on each unit of output they produce, and, therefore, they than workers and firms their production level. At the same time, the real value of wages and other resource prices is expected when they signed long-term contracts. As a result, the economy as a whole produces at a level the unemployment rate is than its natural rate. its full-employment output, and The lower-than-expected price level causes firms to earn profit than they expected on each unit of output they produce, and, therefore, they their production level. At the same time, the real value of wages and other resource prices is than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level the unemployment rate is than its natural rate. its full-employment output, and Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the long-run aggregate supply curve (LRAS) at full-employment output for this economy as well as the same initial short- run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. (?) PRICE LEVEL (CPI) 300 SRAS 250 LRAS 200 150 100 50 50 0 0 3 6 LRAS 9 12 REAL GDP (Trillions of dollars) 15 18: 18 SRAS

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 8SQP

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