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Chapter 11: Q. 2 - Critical Thinking Questions (page 247)

Why do you suppose that a number of economists are advising the Bank of Japan to boost the nation's money supply when the government implements its additional consumption tax increase?

Short Answer

Expert verified

In short term, realGDP will decrease. This arises because a drought will result in a scarcity of products, causing individuals to pay higher prices for the less supply.

Step by step solution

01

Step: 1 Discussion:

The optimum gross Domestic product and the optimum price level in the economy are determined by the interplay of aggregate output. Both the market price and real GDP are affected by a shift in any of the two curves. Many companies rely on water as their lifeblood and primary raw material. The process of production will be hampered by a lack of water resources.

02

Step: 2 Conclusion:

This predicts that in the short run, the supply curve may shift to right left. In the short term, real GDP will decrease. This arises because a drought will result in a scarcity of products, causing individuals to pay higher prices for the less supply.

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Most popular questions from this chapter

Consider an open economy in which the aggregate supply curve slopes upward in the short run. Firms in this nation do not import raw materials or any other productive inputs from abroad, but foreign residents purchase many of the nation's goods and services. What is the most likely short run effect on this nation's economy if there is a significant downturn in economic activity in other nations around the world?

II A particle moving along the xaxis has its velocity described by the function \(v_{x}=2 t^{2} \mathrm{~m} / \mathrm{s}\), where \(t\) is in s. Its initial position is \(x_{0}=1 \mathrm{~m}\) at \(t_{0}=0 \mathrm{~s}\). At \(t=1 \mathrm{~s}\) what are the particle's (a) position, (b) velocity, and (c) acceleration?

Consider Figure 11-10. Suppose that the real interest rate suddenly declines for reasons that do not relate to the price level. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain.

Suppose that the Keynesian short-run aggregate supply curve is applicable for a nation's economy. Use appropriate diagrams to assist in answering the following questions:

aWhat are two events that can cause the nation's real GDPto increase in the short run?

bWhat are two events that can cause the nation's real GDPto increase in the long run?

Consider Figure 11-9. Suppose that businesses in this nation initially had been exporting significant amounts of domestically produced goods and services abroad. Assume that other nations of the world have experienced a sudden decline in economic conditions. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain.
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