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- The following are variables that may cause shifting of aggregate demand (AD) curve. Discuss the effect of increasing these variables to the aggregate demand. Use graphical approach to demonstrate the effect of increasing of each variable and explain why the AD curve shifted. a) Government expenditure (domestic)Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. (?) PRICE LEVEL 180 150 120 90 60 30 0 0 20 Aggregate Demand 40 60 80 OUTPUT (Billions of dollars) 100 120 The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. Aggregate Demand -O in residential and business spending, which will causeSuppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions. Adjust graph in picture. In the short run, price level a. increases. b. decreases. c. The change is indeterminate. In the short run, real GDP (or aggregate output) a. The change is indeterminate. b. decreases. c. increases.
- Suppose you are given the following information about an economy: Short run Aggregate Supply: SRAS = Y = 5000r+ 14,400 Long run Aggregate Supply: Aggregate Demand: Investment Spending: Consumption Spending: Government Spending: Net Exports (eX – iM): LRAS = Y* = 25,000 AD = Y=C+I+G+NX_ I = 4000 – 250r C = 1000 +0.75(Y – T) G = 2000 NX = 500 Taxes – Transfers: T = 2400 Monetary Policy: Money Demand: Money Market equilibrium: Fisher equation: where i is the nominal interest rate (i.e. when the interest rate is 7%, it means i= 7) r = 2 n м 3 20,000- 2000i M$ = MD i = r+T e. Find the short run equilibrium level of real GDP (Y), and inflation rate (t), in the short run. What is the output gap in the economy? Is it an expansionary or recessionary gap?PRICE LEVEL 160 150 140 130 120 110 100 90 80 0 с 1 d X a 2 3 4 5 REAL GDP (Trillions of dollars) 6 + 7 b H 8 (?) Identify which curve on the previous graph corresponds to each description in the following table. If the curve described does not appear on the graph, choose Not Shown. Description Short-run aggregate supply (SRAS) when there is a recessionary gap Aggregate demand (AD) Short-run aggregate supply (SRAS) when there is an inflationary gap Short-run aggregate supply (SRAS) when the economy is in long-run equilibrium Long-run aggregate supply (LRAS) a O b O O O с O O O O d O O Not ShownIf households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?
- Suppose the people of Canada has reduced their spending on goods and services from the United States. What will be the effect on real GDP and the price level in the short run? In the long run? Show your results graphically.4) Draw a graph that plots Short-run Aggregate Supply, Long.Run Aggregate Supply, and Aggregate Demand. Indicate the equilibrium point on the graph. Then, explain the shifts of the curves and the movement of equilibrium under the following events. 1. Government increases the income taxes 2. The war in Libya increases the price of oil globallyAggregate macroeconomic equilibriums Please graphically display a graph for each and all the scenarios. You may draw the graph using any method you like, but your graphs must be legible. 1. Draw a short-run AD–AS graph showing the effect of a severe drop in stock prices that decreases households’ and businesses’ wealth. Indicate the effect on the equilibrium aggregate price level and equilibrium aggregate output. 2. Draw a short-run AD–AS graph showing the effect of a significant decrease in the world supply of oil. Indicate the effect on the equilibrium aggregate price level and equilibrium aggregate output. 3. Draw an AD–AS graph showing a recessionary gap. 4. Draw an AD–AS graph showing an inflationary gap. 5. Draw a graph illustrating short-run macroeconomic equilibrium. 6. Draw a graph illustrating long-run macroeconomic equilibrium.
- Over the past two years there has been a depletion of groundwater in thenation due to severe drought in the country. 1. Which of the two graphs above is correct? Explain why. 2. What happened to real GDP on the selected graph? Why? 3. What happened to the price level on the selected graph? Why? 4. What happened to the aggregate demand and the aggregate supply? Why?During the last two years there has been a depletion of groundwater in the nation because of a severe drought in the country. 1. Which of the two graphs above is correct? Explain why. 2. What happened to real GDP in the selected graph? Why? 3. What happened to the price level in the selected graph? Why? 4. What happened to aggregate demand and aggregate supply Why?What are the factors other than price that can shift aggregate demand curve interms of investment and consumption? Also explain graphically.
