Chapter 24: Q 31. (page 602)
Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?
Yes there are varied solutions to the shift of the AD curve.
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The imaginary country of Harris Island has the
aggregate supply and aggregate demand curves as Table shows.
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 at every price level.
Identify the new aggregate equilibrium.
e. How will the shift in AD affect the original
output, price level, and employment?
What is potential GDP?
Explain why the short-run aggregate supply curve might be vertical in the neoclassical zone of the SRAS curve. How might we tell if we are in the neoclassical zone of the AS?
Table describes Santher's economy.
a. Plot the AD/AS curves and identify the equilibrium.
b. Would you expect unemployment in this
economy to be relatively high or low?
c. Would you expect prices to be a relatively large
or small concern for this economy?
d. Imagine that input prices fall and so AS shifts
to the right by units. Identify the new
equilibrium.
e. How will the shift in AS affect the original
output, price level, and employment?
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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