In Figure 1 above,how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer.
In Figure 1 above,how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer.
Chapter22: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 16P
Related questions
Question
- In Figure 1 above,how does the AD-AS model reflect the idea that governments cannot increase real
GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer.
2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession?
2.2. Define and describe:
- the
aggregate supply (AS) curve in the immediate short run. - the aggregate supply (AS) curve in the short run.
- the aggregate supply (AS) in the long run.
3. Listen: Podcast: The Economics of Fiscal Stimulus - Econ EveryDay
The Covid-19 pandemic shifted the aggregate supply and aggregate demand curves to the left.
Did that increase or decrease real GDP, employment, and inflation rate?
Explain your answer.
Transcribed Image Text:Figure 1: Hayek's (Classical) AD-AS Model
Price
Level
pl
P
The Classical AS curve
AS
07
Yf
AD1
AD
Copyright: www.economicsonline.co.uk
National income
(real GDP)
Economics Online. (n.d.). Aggregate Demand (AD). Retrieved from
http://economicsonline.co.uk/Managing the economy/Aggregate_demand.html
Transcribed Image Text:Figure 2: Keynes's AD-AS Model
Price
Level
P1
P
The Keynesian AS curve
Ye
AS
Yf
Up to real output level yf
increases in AD have no effect
on the price level. Increases
in AD beyond Yf cause an
increase in the price level
but no increase in real output.
AD1
AD2
AD
Copyright: www.economicsonline.co.uk
National income
(real GDP)
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