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Economics: Principles, Problems, and Policies

Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn

Chapter 36

Extending the Analysis of Aggregate Supply - all with Video Answers

Educators

Chapter Questions

04:18

Problem 1

Suppose the full-employment level of real output (Q) for a hypothetical economy is $\$ 250$ and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow:
a. What will be the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using numbers from the table.
b. What will be the level of real output in the long run when the price level rises from 100 to 125 ? When it falls from 100 to 75 ? Explain each situation.
c. Show the circumstances described in parts $a$ and $b$ on graph paper, and derive the long-run aggregate supply curve.

Natalie Britton
Natalie Britton
Numerade Educator
01:42

Problem 2

Suppose that AD and AS intersect at an output level that is higher than the full-employment output level. After the economy adjusts back to equilibrium in the long run, the price level will be ____ .
a. Higher than it is now.
b. Lower than it is now.
c. The same as it is now.

Arrushi Agarwal
Arrushi Agarwal
Numerade Educator
03:29

Problem 3

Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously. If those changes were caused by only one curve shifting, then those changes are best explained as the result of:
a. The AD curve shifting right.
b. The AS curve shifting right.
c. The AD curve shifting left.
d. The AS curve shifting left.

Jesse Leija
Jesse Leija
Numerade Educator
02:06

Problem 4

Identify the two descriptions below as being the result of either cost-push inflation or demand-pull inflation.
a. Real GDP is below the full-employment level and prices have risen recently.
b. Real GDP is above the full-employment level and prices have risen recently.

Arrushi Agarwal
Arrushi Agarwal
Numerade Educator
05:23

Problem 5

Use graphical analysis to show how each of the following would affect the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are eventually flexible both upward and downward, and that there is no counteracting fiscal or monetary policy.
a. Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.
b. Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.
c. Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.

Natalie Britton
Natalie Britton
Numerade Educator
01:53

Problem 6

Between 1990 and $2009,$ the U.S. price level rose by about 64 percent while real output increased by about 62 percent. Use the aggregate demand-aggregate supply model to illustrate these outcomes graphically.

Sujita Thavva
Sujita Thavva
Numerade Educator
01:44

Problem 7

Assume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for several years. Use the AD-AS analysis to show graphically why higher rates of inflation over this period would be associated with lower rates of unemployment, and vice versa. What is this inverse relationship called?

Sujita Thavva
Sujita Thavva
Numerade Educator
01:42

Problem 8

Aggregate supply shocks can cause _____ rates of inflation that are accompanied by _____ rates of unemployment.
a. Higher; higher.
b. Higher; lower.
c. Lower; higher.
d. Lower; lower.

Arrushi Agarwal
Arrushi Agarwal
Numerade Educator
01:42

Problem 8

Aggregate supply shocks can cause _______ rates of inflation that are accompanied by rates ________ of unemployment. LO36.3
a. Higher; higher.
b. Higher; lower.
c. Lower; higher.
d. Lower; lower.

Arrushi Agarwal
Arrushi Agarwal
Numerade Educator
03:05

Problem 9

Suppose that firms are expecting 6 percent inflation while workers are expecting 9 percent inflation. How much of a pay raise will workers demand if their goal is to maintain the purchasing power of their incomes?
a. 3 percent.
b. 6 percent.
c. 9 percent.
d. 12 percent.

Alex Loukas
Alex Loukas
Numerade Educator
10:21

Problem 10

Suppose that firms were expecting inflation to be 3 percent, but then it actually turned out to be 7 percent. Other things equal, firm profits will be:
a. Smaller than expected.
b. Larger than expected.

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator