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 ASL AD₁ 9 Tools AD₂ AS₂

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 ASL AD₁ 9 Tools AD₂ AS₂

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

How is long-term growth illustrated in an AD/AS model?
How is pressure for inflationary price increases shown in an AD/AS model?
Does Says law apply more accurately in the long run or the short run? What about Keynes law?
How is recession illustrated in an AD/AS model?
What are some of the ways in which exports and imports can affect the AD/AS model?
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 Ⓡ
Comparing ModelsWhat are the differences between our Keynesian Cross and the Macro Equilibrium (AS and AD) diagram? Which model has more to offer?
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?
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.
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.
09. The left-hand Which of the following statements is tru about the diagrams above depicting the macroeconommy in both Keynesian and Classical frameworks and a change from AEo to AE* and ADo to AD*? a) The left-hand diagrams show the effect of an increase in Aggregare Expenditures (and Aggregate Demand), where the short-run Aggregate Supply is horizontal, meaning a constant products price level. b) The right hand diagrams show the effect of an increase in Aggregate Expenditrues (and Aggregate DEmand), where short-run Aggregate Supply is vertical (constant Aggregate Quantity Supplied). c) The left-hand diagrams illustrate the Keynesian range of the shor-run Aggregate Supply curve, where Keynesian expansionary policy does not cause any inflation and thus is very effective. d) The right-hand diagrams illustrate the Classical or Monetarist range of the short-run Aggregate Supply curve, where Keynesian expansionary policy is totally dissipated in…
1. a) Construct the AD-AS model showing AD, short run AS and long run AS intersecting at the potential output level and label this intersection Eo. Assume that this represents the Philippine economy before the pandemic. b) From the initial condition, illustrate in your graph how the pandemic affected the economy in the short run (was there a demand shock or supply shock or both)? c) Explain the reason for the shift in the curve or curves? d) Explain how the changes in the AD-AS model above have affected equilibrium real GDP, unemployment, and price level.