Shown on the right is an aggregate demand-aggregatesupply graph of an economy initially in a long-runequilibrium at point A.Now suppose the economy experiences a negativeaggregate demand shock.1.) Using the line drawing tool, draw the new aggregatedemand curve and label it as 'AD2'.2.) Using the point drawing tool, identify the new short-run equilibrium point and label it as 'B'3.) Using the line drawing tool, draw the new short-runaggregate supply curve and label it as ". 4.) Using thepoint drawing tool, identify the new long-run equilibriumpoint and label it as 'C'.Carefully follow the instructions above and only draw therequired objects.LRASHEP1YpPrice LevelReal GDPSRAS1

Macroeconomic monitoring will remain crucial since it dictates the eventual trajectory of the…

Shown on the right is an aggregate demand-aggregate supply graph of an economy initially in a long-run equilibrium at point A. Now suppose the economy experiences a negative aggregate demand shock. 1.) Using the line drawing tool, draw the new aggregate demand curve and label it as 'AD2'

Shown on the right is an aggregate demand-aggregate supply graph of an economy initially in a long-run equilibrium at point A. Now suppose the economy experiences a negative aggregate demand shock. 1.) Using the line drawing tool, draw the new aggregate demand curve and label it as 'AD2'

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Aggregate Demand And Aggregate Supply

Section15.2: Explaining Short-run Economic Fluctuations

Problem 2QQ

See similar textbooks

Related questions

Q: 34- Suppose the president of a college argues that a 25 percent tuition increase will raise revenues…

A: Elasticity concepts depict the change in behaviour of consumers and sellers due to changes in price…

Q: The data in the table below are for the economy of Nubia. a. Complete the AE column. Y 1 100 208 300…

A: Aggregate Expenditure (AE) equals consumption (C) + investment (I) + government expenditure (G) +…

Q: A new engineering graduate who started a consulting business borrowed money for 1 year to furnish…

A: The total loan amount is $23,800, with an interest rate of 10%. On top of this, the engineer had to…

Q: The canadian annual inflation rate exceeds annual increase in canadian wings this statement isca…

A: Annual inflation refers to the percentage increase in the average price level of goods and services…

Q: Derive the marginal revenue (MR) equation if total revenue TR = 3(2Q - 5)5 A. MR = 2(2Q - 5)4 B. MR…

A: The process of transforming raw elements such as labor and unprocessed commodities into services and…

Q: A firm in long run perfect competition is charging $5.00 for its product. Its long run average Total…

A: It can be defined as the metric of a cost that tells about the average cost incurred to produce each…

Q: 2-5 Kraft and Cadbury When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value…

A: The amount that a collection of products and services have increased in price during a specific time…

Q: Which of the following will not effect Potential GDP in Country X? government institutions O the…

A: Potential GDP refers to the maximum amount of goods and services an economy can produce when it is…

Q: Draw points to show the price when the quantity is 4 scoops and the rainfall is 1) 0 inches. Label…

A: Demand is defined as the desire and ability to pay for an individual at various prices at a given…

Q: The world price of wine is below the price that would prevail in Canada in the absence of trade.…

A: Use the green triangle to shade consumer surplus when Canada is open to trade. Then use the purple…

Q: Consider two firms that compete according to the Cournot model. Inverse demand is P (Q) = 16 − Q.…

A: Cournot Duopoly model: This is an oligopoly model where 2 firms compete in the market. Here both…

Q: 2.1 Examine the main findings about recent literature that measures the relationship between…

A: Economic Growth: Economic growth is the increase in a country's production and consumption of goods…

Q: Discuss the demand schedule and the demand curve, as well as how they are related to one another

A: Demand for goods and services is a fundamental concept in economics, shedding light on how consumers…

Q: ccording to Robert Shiller’s investigations, which of the following booms in the U.S. housing market…

A: "Irrational exuberance" is a term popularized by economist Robert J. Shiller to describe periods of…

Q: 8. Problems and Applications Q8 Suppose the government borrows $20 billion more next year than this…

A: In economics, the aforeknown term is associated with the debt incurred by a country's government to…

Q: . Imagine that there is an industry for a particular product where the demand for this product is…

A: (a) Long-Run Equilibrium with Fixed Number of Firms:In the long run, firms will produce where their…

Q: Suppose that the local government of Raleigh decides to institute a tax on soda producers. Before…

A: The distribution of the economic burden of a tax among consumers, producers, and society as a whole…

Q: CTL (Concrete Testing Lab) borrowed $160,000 for new equipment at 10% per year, compounded…

A: Principal after a specified payment can be summarized as the amount that is due after a certain…

Q: Suppose that Comcast has a cable monopoly in Philadelphia. The following table gives Comcast's…

A: Monopoly market is the type of market in which there is only a single seller and many buyers. The…

Q: Solar Panel Installation A university spent $1.8 million to install solar panels atop a parking…

A: A discount rate is the rate of interest used to determine the present value of future cash flows in…

Q: Assume you spend your entire income on two goods X & Y with prices given as Px & PY, respectively.…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Explain how this decision by country G could affect its long-run markup. Using diagrams, explain…

A: The global concern over climate change has prompted nations to adopt varying levels of environmental…

Q: 3. Two parties are bargaining to split the profits from the successful investment. The bargaining…

A: The subgame perfect game represents the repeating unique Nash Equilibrium for each player. It is…

Q: 8. (a) (b) (c) (d) In a 2-good model, where the goods are denoted X₁ and X2, the consumer's utility…

A: Since you have asked for 5 subparts, we will be solving only the first 4 due to the time constraint.…

Q: The graph to the right shows the market for jet fighter airplanes. The manufacturers of these…

A: Equilibrium price is the price at which quantity demanded equals quantity supplied and the market…

Q: The figure shows the marginal private cost curve, marginal social cost curve, and marginal social…

A: Market price : The market price is the current price at which a good or service can be purchased or…

Q: What is the value of the money multiplier if the target reserve ratios of all banks in the banking…

A: [Dear student, as you have posted multipart question, we are supposed to do only the first three sub…

Q: 3. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of…

A: As per the guidelines we are allowed to answer the first three subparts only. Please post the…

Q: Why did the practice of privatisation become the favoured policy of many governments around the…

A: It can be defined as the unintended effect in which the parties related to that economic activity is…

Q: 1.) Using the point drawing tool, indicate the monopoly output and monopoly price (Monopoly) in the…

A: 1. Using the point drawing tool, indicate the monopoly output and monopoly price (Monopoly) in the…

Q: 5. Expectations and the modern view of the Phillips curve The following graph shows the short-run…

A: Short run Philips curve signifies what is happening of high expansion and low joblessness rate as…

Q: 2. There are n ≥ 2 profit-maximising firms producing a homogeneous good, competing in quantity, and…

A: There is a mention in the question to answer only parts D and E of the question. In order to answer…

Q: how can the healthcare economy be fixed? How can we solve healthcare problems?

A: The part of the economy concerned with economic activities associated with the production,…

Q: (a) A typical person's indifference curves between garbage and the composite good. (b) Indifference…

A: Indifference curve is the summation of two goods or commodities that provide equal utility to an…

Q: Increasing Movie Ticket Prices To conduct an experiment, AMC increased movie ticket prices from…

A: In economics, elasticity of demand is a measure of how sensitive the quantity demanded of a good or…

Q: Consider the market for corn. The following graph shows the weekly demand for corn and the weekly…

A: The equilibrium price and equilibrium quantity of a good sold in the market are determined by the…

Q: 7. Regulating a natural monopoly Consider the local talephone company, a natural monopoly. The…

A: A natural monopoly is a type of monopoly in an industry with high barriers to entry and start-up…

Q: PRICE (Dollars per headset) 250 225 200 175 150 125 100 75 50 25 0 0 Demand Supply 25 50 75 100 125…

A: Equilibrium occurs at a point where the quantity demanded is equal to the quantity supplied. Here…

Q: (a)Draw a graph of the consumption function with respect to disposable income. Measure/show…

A: The consumption function shows the total income and consumption goods and services relationship in…

Q: 1. Suppose a consumer's utility function is: U (x₁, x2) = x²x3. Furthermore, suppose the con-…

A: A consumer utility function is a concept from economics that represents an individual's preferences…

Q: The following data are for the economy of Moksha. C-25 0.7Y 1-60 a. Calculate equilibrium GDP.…

A: Note: Since you have posted a question with multiple sub parts, we will provide the solution only to…

Q: The most efficient way to get firms to reduce pollution is to A set a uniform emissions standard and…

A: Pollution, especially from industrial processes, is a major environmental concern.Governments and…

Q: In the Solow model, the equation of capital accumulation is K1-K, +4₂-ak, True False

A: The production function determines all the input bundles that produce the same output level.The…

Q: The generalized average cost function for a firm ABC is determined, 13 AC = 20 +6+_ Q a Find the…

A: We have given the following average cost function: AC = 2Q + 6 + (13 / Q)

Q: Two software companies sell competing products. These products are substitutes so that the number of…

A: X1=1000*(90-0.5P1+0.25P2)X1=1000*(90-0.5P2+0.25P1)MC=0Fixed cost>0Thank you for the question. As…

Q: Suppose that φB=0.4 (and not φB=1). What is the maximum amount LB that agent B can borrow with…

A: Given:Utility functions for agents A, B, and C:Endowments and bond/payoff details:Agent A: Bond at…

Q: at point b) - The formula written down when MC is equated with MR is d(P x Q) / dQ. Then in the next…

A: In this case, we have to use the term marginal revenue. Marginal revenue actually shows the…

Q: social cost (MSC) and marginal social benefit (MSB) for firms that pollute the air with benzene…

A: A tax imposed on private individuals or companies for engaging in activities that have negative side…

Q: Derive excess demand functions for the inputs and output of a representative firm with the…

A: The association between inputs and the output of products and services in an economy is shown by a…

Q: Suppose a monopolist producing Q units of output faces the demand curve P = 20 - Q. Its total cost…

A: A market form in which a firm has exclusive control over the production, distribution, or sale of a…

Question

Shown on the right is an aggregate demand-aggregate
supply graph of an economy initially in a long-run
equilibrium at point A.
Now suppose the economy experiences a negative
aggregate demand shock.
1.) Using the line drawing tool, draw the new aggregate
demand curve and label it as 'AD2'.
2.) Using the point drawing tool, identify the new short-
run equilibrium point and label it as 'B'
3.) Using the line drawing tool, draw the new short-run
aggregate supply curve and label it as ". 4.) Using the
point drawing tool, identify the new long-run equilibrium
point and label it as 'C'.
Carefully follow the instructions above and only draw the
required objects.
LRAS
HE
P1
Yp
Price Level
Real GDP
SRAS1

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define macroeconomic management

VIEW

Step 2: Draw the new aggregate supply curve

VIEW

Step 3: Explain the new short run equilibrium

VIEW

Step 4: Explain the transition to the long run equilibrium

VIEW

Solution

VIEW

Step by step

Solved in 5 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Assume initially an economy is at its long run equilibrium. Then, price of oil in theworld increases. What will happen to real GDP and aggregate price level in the short runequilibrium following the increase in price of oil? Use the Aggregate Demand – AggregateSupply model to answer the question.
Shown on the right is an aggregate demand-aggregate supply graph of an economy initially in a long-run equilibrium at point A. Now suppose the economy experiences a negative aggregate supply shock. 1.) Using the line drawing tool, draw the new aggregate supply curve and label it as 'SRAS2'. 2.) Using the point drawing tool, identify the new short-run equilibrium point and label it as 'B'. 3.) Using the point drawing tool, identify the new long-run equilibrium point and label it as 'C'. Carefully follow the instructions above and only draw the required objects. Price Level P₁ ما LRAS A AD₁ SRAS. Real GDP
You will use the aggregate demand and supply model to analyze the economy. a. Draw the Aggregate Demand (AD), the Short-Run Aggregate Supply curves (SRAS) in one diagram. Make sure you label the axis and each line. Call the initial equilibrium Y1, P1. b. We observe an increase in aggregate demand. Illustrate this increase in your graph. Call the new equilibrium Y2, P2 can you please make the graph Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
In 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4% A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equation Using this information, draw Prussia's old and new dynamic aggregate demand curves on the graph Which of the factors could have resulted in the change irn aggregate demand seen between 2013 and 2014? 13 AD 2013 an improvement in technology O an increase in imports O higher consumer confidence O a decrease in oil prices 12 AD 2014 10 8 5 4 3 2 4 -3 2 1 0 1 2 3 4 5 6 78 9 10 Real GDP growth rate
For each of the three theories for the upward slopeof the short-run aggregate-supply curve, e<~rcfullyexplain the following:tl. how the economy recovers from a recession andreturns to its long-run equilibrium without anypoUcy inrerventionb. what determines the speed of that recovery
In 2019, before the Covid-19 pandemic began affecting the U.S. economy, Nouriel Roubini of New York University identified "three negative supply shocks that could trigger a global recession by 2020." What is a negative supply shock? OA. Any event that causes consumers to unexpectedly increase their consumption, shifting aggregate supply to the left OB. An event that causes an unexpected change in production costs or technology, shifting short-run aggregate supply to the left OC. An event that causes an unexpected change in production costs or technology, shifting long-run aggregate supply to the left OD. Any event that causes firms to sell more goods than they can produce, shifting aggregate supply to the left
Assume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on: aggregate demand, aggregate supply, price level, real GDP.(a) A decrease in government expenditure in infrastructure(b) A severe recession occurs in a country which has been a major importer of thenation’s exports.(c) The federal government increases business taxes with diagram
What might shift the aggregate-supply curve tothe left? Use the model of aggregate demand andaggregate supply to trace the short-run and long-runeffects of such a shift on output and the price level.
The graph on the right shows a basic aggregate demand and aggregate supply graph (with LRAS constant) that shows the economy in long-run equilibrium at point A. Assume that there is an unexpected increase in the price of oil. 1.) Use the line drawing tool to show the resulting short-run equilibrium on your graph. Label any new aggregate demand or aggregate supply curve as AD2, SRAS2 or LRAS2 as appropriate 2) Use the point drawing tool to locate the new short-run equilibrium point Label this point B Carefully follow the instructions above, and only draw the required objects Price level (GDP Deflator, 2005 = 100) LRAS₁ A SRAS₁ Real GDP (trillions of 2005 dollars) AD1
For each scenario listed below, start by drawing a fully-labeled Aggregate Supply-Aggregate Demand diagram of an economy in long-run equilibrium. Then, shift the appropriate curve(s) – either AD or SRAS – dictated by the events given. Third, identify the short-run and long-run effects of each event on the price level, P and the real output, Y. a. The Federal government increases spending on national defense. b. Suppose that U.S. trading partners (e.g., China or Germany) impose a tax/tariff on US exports to these countries.
Explain whether each of the following events shiftsthe short-run aggregate-supply curve, the aggregatedemand curve, both, or neither. For each event thatdoes shift a curve, draw a diagram to illustrate theeffect on the economy.a. Households decide to save a larger share of theirincome.b. Florida orange groves suffer a prolonged period ofbelow-freezing temperatures.c. Increased job opportunities overseas cause manypeople to leave the country.
The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model Figure 8.3 U.S. Price Level B O AD, toAD; O AD, to AD₂ O AD₂ to AD₁ O AS, to AS; AS; to AS₂ 100 200 300 400 AS3 AS₁ AD₂ 500 Real GDP (billions of dollars) AD AS₂ AD3 In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?