Confused and not sure how to answer Step 1: Short-Run EquilibriumThe following graph shows an aggregate demand (AD) curve and a short-run aggregate supply(SRAS) curve for an economy. Suppose that the economy is initially in a short-runequilibrium: at PE, and Real GDP is 10 trillion.Suppose that at some point, the price increases to p*.PRICE LEVEL0 2At p*, there isfirmsSRAS6B 10 12 14 16REAL GDP (Trillion Dollars)of $AD18 20trillion goods. As a result, the price leveloutput, and consumersconsumption.Step 2: Changes in Short-Run EquilibriumThe following graph shows an aggregate demand (AD) curve and a short-run aggregate supply(SRAS) curve for an economy. Suppose the economy is initially in a short-run equilibrium at Step 2: Changes in Short-Run EquilibriumThe following graph shows an aggregate demand (AD) curve and a short-run aggregate supply(SRAS) curve for an economy. Suppose the economy is initially in a short-run equilibrium atPE, and Real GDP is 10trillion.At some point, the economy experiences an increase in wage rates.Adjust the following graph to show the effect of an increase in wage rates on the economy.(?)Price Levela0268 10 12 14Real GDP (Trillions Dollars)SRASAD18中田中器SRASWhich of the following best describes the effect of an increase in wage rates?The price level rises above PE, but the Real GDP remains the same.The price level rises above PE, and the Real GDP decreases to $6 trillion.The price level falls below PE, and the Real GDP increases to $6 trillion.The price level remains the same, but the Real GDP decreases to $6 trillion.Suppose the economy experiences an increase in the interest rate. Adjust the graph to showthe effect of an increase in the interest rate on the economy.Which of the following best describes the effect of an increase in the interest rate?The price level falls even further below PE, and Real GDP decreases from $6 trillionto $4 trillion.The price level rises even higher above PE, and Real GDP increases from $6 trillionto $4 trillion.The price level falls but still remains above PE and Real GDP decreases further from$6 trillion to $4 trillion.The price level rises back to PE, and Real GDP increases from $6 trillion to $4trillion.

In the diagram we can see that the economy is an equilibrium where the demand and the supply curve…

Step 1: Short-Run Equilibrium The following graph shows an aggregate demand (AD) curve and a short-run aggregate supply (SRAS) curve for an economy. Suppose that the economy is initially in a short-run equilibrium: at PE, and Real GDP is 10 trillion. Suppose that at some point, the price increases to p*. (?)

Step 1: Short-Run Equilibrium The following graph shows an aggregate demand (AD) curve and a short-run aggregate supply (SRAS) curve for an economy. Suppose that the economy is initially in a short-run equilibrium: at PE, and Real GDP is 10 trillion. Suppose that at some point, the price increases to p*. (?)

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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