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Chapter 24: Q 14. (page 601)

If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

Short Answer

Expert verified

There are various effects overall.

Step by step solution

01

Step 1. Definition

The SRAS (short-run aggregate supply) curve is a curve that shows that if there is an increase in price level and you will be moving along the SRAS, there will be an increase in the amount of real GDP which will be produced in an economy.

02

Step 2. Explanation

Because in the neoclassical zone the SRAS curve is vertical, except if the economy edging the middle zone. Because the decrease in AS will cause a decline in the price levels but there is no effect on the real economic activity like real GDP or employment.

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Most popular questions from this chapter

What is the neoclassical zone of the SRAS curve? How much is the output level likely to change in the neoclassical zone?

How is recession illustrated in an AD/AS model?

The imaginary country of Harris Island has the

aggregate supply and aggregate demand curves as Table 24.3shows.

a. Plot the AD/AS diagram. Identify the equilibrium.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this

economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275at every price level.

Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original

output, price level, and employment?

How is pressure for inflationary price increases shown in an AD/AS model?

Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. If a large percentage of factories and utility companies use natural gas, what will happen to output, the price level, and employment as fracking becomes more widely used?
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