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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

Evaluate likely reasons for persistent inflation in recent decades

What would happen to the South African inflation fate in future years if the AD curve were to begin shifting rightward at a more rapid pace than the LRAS curve?

In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.

a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?

b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.

Consider Figure 10-4. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve?

Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?
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