Which of the following statements best describes how the economy will adjust on its own in the long run?Low unemployment contributes to an increase in aggregate demand. The aggregate demand curve shifts tothe right until the economy is back at the long-run equilibrium.Nominal wages rise and the SRAS curve shifts to the left until the economy is back at the long-run equilibrium.Nominal wages fall and the SRAS curve shifts to the right until the economy is back at the long-runequilibrium.High unemployment contributes to a decrease in aggregate demand. The aggregate demand curve shifts tothe left until the economy is back at the long-run equilibrium. 11. Applying the extended AD-AS modelAa AaFinancial crises, such as the one that impacted many developed countries starting in 2007, decrease banks' abilityand willingness to make loans. Decreased availability of credit decreases businesses' ability to make investmentpurchases and consumers' ability to buy goods and services. As a result, a financial crisis is a negative shock for aneconomy.The following graph shows an economy's aggregate demand curve and its short-run and long-run aggregate supplycurves after a financial crisis has pushed it into recession.Suppose that the government decides not to use stabilization policy and allows the economy to adjust on its own.Determine which curve, the aggregate demand curve or the short-run aggregate supply curve, shifts when theeconomy adjusts in the long run.Use either the purple line (triangle symbols) to plot a new aggregate demand curve or the tan line (dash symbols) toplot a new short-run aggregate supply curve, to show the economy in long-run equilibrium. Make sure the curve youplot is parallel to one of the existing curves. (Note: You can check the slope of a line by hovering over it with yourcursor.)AGGREGATE PRICE LEVEL200180160140120100806040200211LRASSRASAD4 6 8 10 12 14 16 18 20REAL GDP (Trillions of dollars]New ADNew SRASHelpClear All

In case of unemployment there would be a downward pressure on wages => the cost of production of…

Which of the following statements best describes how the economy will adjust on its own in the long run? Low unemployment contributes to an increase in aggregate demand. The aggregate demand curve shifts to the right until the economy is back at the long-run equilibrium. Nominal wages rise and the SRAS curve shifts to the left until the economy is back at the long-run equilibrium. Nominal wages fall and the SRAS curve shifts to the right until the economy is back at the long-run equilibrium. High unemployment contributes to a decrease in aggregate demand. The aggregate demand curve shifts to the left until the economy is back at the long-run equilibrium.

Which of the following statements best describes how the economy will adjust on its own in the long run? Low unemployment contributes to an increase in aggregate demand. The aggregate demand curve shifts to the right until the economy is back at the long-run equilibrium. Nominal wages rise and the SRAS curve shifts to the left until the economy is back at the long-run equilibrium. Nominal wages fall and the SRAS curve shifts to the right until the economy is back at the long-run equilibrium. High unemployment contributes to a decrease in aggregate demand. The aggregate demand curve shifts to the left until the economy is back at the long-run equilibrium.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter10: Aggregate Demand And Supply

Section10.A: The Self Correcting Aggregate Demand And Supply Model

Problem 7SQ

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Assume that the long-run aggregate supply curve is vertical at Y= 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(MIP) and M = 1,500. ▪a. Is the economy is initially in long-run equilibrium?what are the values of P and Y? ▪b. If M increases to 2,000, what are the new short-run values of P and Y? ▪c. Once the economy adjusts to long-run equilibrium at M = 2,000, what are P and Y?
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Suppose the economy is initially at K. Which of the following statements best explains how the economy responds to restore long-run macroeconomic equilibrium? Select one: a. Over time, the aggregate demand curve will shift to the right until long-run equilibrium is restored at J and the gap is closed. b. Rising unemployment puts pressure on nominal wages to fall. The SRAS curve shifts right to SRAS1 closing the gap at H. c. In response to rising prices, firms will increase production moving along SRAS2 until long- run equilibrium is restored at J and the gap is closed. d. Rising unemployment puts pressure on nominal wages to fall. Firms employ more workers moving along SRAS2 until long-run equilibrium is restored at J and the gap is closed.
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The figure below is a part of the AD-AS model as a description of the current situation of an economy. PA=$10 P YA=4000 Y a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping. d) Suppose the government takes no action about the situation indicated above. Explain, with the help of a figure properly labeled, what will happen in this economy in the long run. e) Describe the two kinds of macroeconomic policies that can be used in the situation described before part c). Indicate clearly in your description whether each policy is to the aggregate demand or aggregate supply or Further, give reason(s) as to why the government may want to use these policies rather than doing nothing.