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Chapter 10: Q. cFCT (page 224)

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?

Short Answer

Expert verified

Increasing anyof these components shifts the AD curve tothe correct,leading to a greater real GDP and to upward pressure onthe worth level.

Step by step solution

01

Given Information

The aggregate demand curve, or AD curve, shifts to the right because the components purchase, industry, public expenditure, and investment on minus the value importation all grow as money supply improves. As of these portions drop, its AD curve to shift back to the left.

02

Explanation

If the AD curve shifts tothe right, then the equilibrium quantity of output and also the indicant will rise. If the AD curve shifts to the left, then the equilibrium quantity of outputand so the index will fall.

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Most popular questions from this chapter

Suppose that the long-run aggregate supply curve is positioned at a real GDP level of $18trillion in base-year dollars, and the long-run equilibrium price level (in index number form) is 115 . What is the full-employment level of nominal GDP?

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?

For each question, s褖pose that the exonorm begins at the long-run equilibrium point Ain the diagram below. Identify which of the other points on the diagram-points B,C,D, or E-could represent a new long-run equilibrium after the described events take place and move the economy away from point A.

a. Significant productivity improvements occur, and the quantity of money in circulation increases.

b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government imposes a large tax increase on the nation's households.

c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government reduces its spending on goods and services.

Consider the diagram below when answering the questions that follow.

a. Suppose that the current price level is P2. Explain why the price level will decline toward P1.

b. Suppose that the current price level is P3. Explain why the price level will rise toward P1.

Many economists view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curve. How can there be positive unemployment in this situation?
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