Two potential causes of inflation above target in the AD-AS model: Demand-pull inflation: This occurs when aggregate demand (AD) increases more than the long-run aggregate supply (LRAS). In the AD-AS diagram, this would be represented by a rightward shift of the AD curve. The result is a higher price level and real GDP beyond the long-run macroeconomic equilibrium level. Cost-push inflation: This occurs when the short-run aggregate supply (SRAS) curve shifts to the left due to increased production costs, such as rising wages or input prices. In the AD-AS diagram, this would be represented by a leftward shift of the SRAS curve. The result is a higher price level and a reduction in real GDP. how do i graph this information in an ad-as diagram

Two potential causes of inflation above target in the AD-AS model: Demand-pull inflation: This occurs when aggregate demand (AD) increases more than the long-run aggregate supply (LRAS). In the AD-AS diagram, this would be represented by a rightward shift of the AD curve. The result is a higher price level and real GDP beyond the long-run macroeconomic equilibrium level. Cost-push inflation: This occurs when the short-run aggregate supply (SRAS) curve shifts to the left due to increased production costs, such as rising wages or input prices. In the AD-AS diagram, this would be represented by a leftward shift of the SRAS curve. The result is a higher price level and a reduction in real GDP. how do i graph this information in an ad-as diagram

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter14: Aggregate Demand And Supply

Section: Chapter Questions

Problem 15SQ

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Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary positive demand shock would lead to output above potential in period 1, but below potential in period 2. Answer true or false. Please briefly explain your answer.
Which of the following is true in the dynamic AS-AD model? Group of answer choices The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.
Price level (GDP deflator, 2009 = 100) The graph shows an economy's aggregate demand curve, short-run aggregate supply curve, long-run aggregate supply curve, and equilibrium. Draw the AD curve when it is correctly expected that the inflation rate will be 20 percent a year. Label it. Draw the SAS curve when a change to the money wage rate occurs that correctly anticipates the increase in aggregate demand. Label it. Draw a point at the new equilibrium. As we move up along the LAS curve, the A. real wage rate is constant B. real wage rate is increasing C. real wage rate is decreasing D. money wage rate is constant 130- 120- 110- 100 100- 90- LAS 13.0 SAS 0 AD 80- 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 Real GDP (trillions of 2009 dollars) >>> Draw only the objects specified in the question.
Which of the following is true the dynamic AS-AD model? The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.
The mainstream view of macroeconomic instability emphasizes sticky prices. To answer the following questions, modify the aggregate supply curve in the extended AD-AS model introduced in Chapter 35. First, imagine that both input and output prices are fifixed. What does the aggregate supply curve look like? If AD decreases in this situation, what will happen to equilibrium output and the price level? Next, imagine that input prices are fifixed, but output prices are flexible. What does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? Finally, if both input and output prices are fully flflexible, what does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? (Hint: If you are having trouble drawing these three aggregate supply curves, review the immediate-short-run aggregate supply curve and the short-run aggregate supply curve…
Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is y-900 and the initial price level is p= 100: The aggregate demand curve is given by Y=1500 –6P: Scenario 2, short run: A major earthquake destroys a part of the economy's capital stock and reduces the full-employment level of output shifts to y = 880: In the short run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
Based on research conducted by the Department of Economic Analysis, the government and policy advisors of an economy believe that the full employment GDP is $7500 billion, and Pe, the overall expected price level is 118. In addition, the researchers estimate that the short run aggregate supply equation is Y = Ypot + 80 (P - Pe), where Ypot is the potential level of output. In addition, the researchers estimate that the short run aggregate supply equation is Y = Ypot + 80 (P- Pe), where Ypot is the potential level of output. In 2016, the population was 400 million, and the structure of the economy was described by the following equations for household consumption behavior and taxes received: C = 100+ 0.8DI, and T = 0.25Y where all monetary values are in billions of dollars. Government spending was fixed at $1700 billion, and firm's investment behavior was fixed at $800 billion. Trading is allowed in this economy and in 2016, trading occurred such that the trade account was balanced.…
A severe negative supply shock occurs when there is a significant reduction in the supply of key inputs, such as labor, raw materials, or energy. This can lead to a reduction in output, higher prices, and potentially stagflation (i.e., high inflation and low economic growth). To tackle the effects of a severe negative supply shock, governments and central banks may use various macroeconomic policies. Supply-side policies: Supply-side policies refer to measures aimed at increasing the productive capacity of the economy. In the case of a severe negative supply shock, the government may implement supply-side policies such as tax incentives or subsidies to encourage firms to invest in new technology or production methods. However, these policies may take time to have an impact and may not be sufficient to offset the immediate effects of the supply shock. explain this graphically please.
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.
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.
Which of the following describes the use of Keynesian macroeconomic policy to resolve an inflationary gap problem in the economy? a) Unemployment, resulting from the short-run product markets equilibrium being below Long-run Aggregate Supply (LRAS), causes wages to decline, which increases short-run Aggregate Supply (AS), until long-run equilibrium is attained at full employment level of income and a lower price level. b) Government spending is increased, increasing Aggregate Demand (AD) to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level. c) In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the short-run Aggregate Supply (AS) to decrease to the point where long-run equilibrium is restored. d) Taxes are increased reducing Aggregate Demand (AD) to a level consistent with full employment.
Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a: A) rightward shift of the aggregate supply curve from AS2 to AS1. B) leftward shift of the aggregate supply curve from AS1 to AS2. C) move from a to d along the long-run aggregate supply curve. D) move from a to c to d.