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Chapter 10: Q. 5 (page 228)

Identify the combined shifts in long-run aggregate supply and aggregate demand that could explain the following simultaneous occurrences,

a. An increase in equilibrium real GDP and an increase in the equilibrium price level

b. A decrease in equilibrium real GDP with no change in the equilibrium price level

c. An increase in equilibrium real GDP with no change in the equilibrium price level

d. A decrease in equilibrium real GDP and a decrease in the equilibrium price level

Short Answer

Expert verified

a. Rightward shift of aggregate demand curve should be quite the rightward shift of long-run aggregate supply curve.

b. Long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

c. Long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

d. Leftward shift of aggregate demand curve should be over the leftward shift of long-run aggregate supply curve.

Step by step solution

01

Rightward Shift (a)

(a) Arise in equilibrium real GDP and a rise within the equilibriumindicator is attained when both long run aggregate supply curve and aggregate demand curve shifts rightwards.
However, rightward shift of aggregate demand curve should bequite the rightward shift of long-run aggregate supply curve.

02

Leftward Shift (b)

(b) A decrease in equilibrium real GDP with no changewithin the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

03

Rightward shift (c)

(c) Arise in equilibrium real GDP with no change within the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

04

Leftward Shift (d)

(d) A decrease in equilibrium real GDP and a decreasewithin the equilibriumprice index is attained when both long-run aggregate supply curve and aggregate demand curve shifts leftwards.
However, leftward shift of aggregate demand curve should beover the leftward shift of long-run aggregate supply curve.

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Most popular questions from this chapter

Why do you suppose that economists generally and more interested in the Index of Consumer Sentiment's validity than they are in its reliability as a predictor?

Discuss the concept of long-run aggregate supply and describe the effect of economic growth on the long-run aggregate supply curve

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?

Explain whether each of the following events would cause a movement along or a shift in the position of the L.RAS curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.

b. There has been an 8 percent increase in the quantity of money in circulation that has shifted the ADcurve.

c. A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast.

d. Inflation has occurred during the roast year as a result of rightward shifts of theAD curve.

10-13. Explain whether each of the following events would cause a movement along or a shift in the ADcurve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Deflation has occurred during the past year.

b. Real GDP levels of all the nation's major trading partners have declined.

c. There has been a decline in the foreign exchange value of the nation's currency,

d. The price level has increased this year.
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