/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q3. Suppose that an economy begins i... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 18: Q3. (page 389)

Suppose that an economy begins in long-run equilibrium before the price level and real GDP both decline simultaneously. If those changes were caused by only one curve shifting, then those changes are best explained as the result of:

a. the AD curve shifting right.

b. the AS curve shifting right.

c. the AD curve shifting left.

d. the AS curve shifting left.

Short Answer

Expert verified

The correct option is (c): the AD curve shifting left.

Step by step solution

01

The explanation for correct option (c)

In the AD-AS model, the long-run equilibrium is obtained when the short-run aggregate supply curve, aggregate demand curve, and long-run aggregate supply curves intersect.A shift in the aggregate demand curve causes price and GDP levels to change in the same direction. A short-run aggregate supply curve shift causes price and GDP levels to change in the opposite direction.

So, if an economy begins from long-run equilibrium, then the decline in price and output levels can be caused by a leftward shift of the aggregate demand curve.

Hence, the correct option is (c).

02

The explanation for correct options (a), (b), and (d) 

If the aggregate demand curve shifts rightward, there will be a rise in price and output levels.

So, option (a) is incorrect.

If the aggregate supply curve shifts rightward, there will be a rise in output level and a decline in the price level. So, option (b) is incorrect.

If the aggregate supply curve shifts leftward, there will be a fall in output and a price level rise. So, option (d) is incorrect.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Suppose that over a 30-year period Buskerville鈥檚 price level increased from 72 to 138, while its real GDP rose from \(1.2 trillion to \)2.1 trillion. Did economic growth occur in Buskerville? If so, by what average yearly rate in percentage terms (rounded to one decimal place)? Did Buskerville experience inflation? If so, by what average yearly rate in percentage terms (rounded to one decimal place)? Which shifted rightward faster in Buskerville: its long-run aggregate supply curve (ASLR) or its aggregate demand curve (AD)?

Why might one person work more, earn more, and pay more income tax when his or her tax rate is cut, while another person will work less, earn less, and pay less income tax under the same circumstance?

Suppose the full-employment level of real output (Q) for a hypothetical economy is $250 and the price level (P) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow:

AS(P100)
AS(P125)
AS(P75)
PQPQPQ
125280125250125310
100250100220100280
752207519075250

What is the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What happens if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using numbers from the table.

b. What is the level of real output in the long run when the price level rises from 100 to 125? When it falls from 100 to 75? Explain each situation.

c. Illustrate the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.

On average, does an increase in taxes raise or lower real GDP? If taxes as a percentage of GDP go up by 1 percent, by how much does real GDP typically change? Are the decreases in real GDP caused by tax increases temporary or permanent? Does the intention of a tax increase matter?

Suppose that for years East Confetti鈥檚 short-run Phillips Curve was such that each 1 percentage point increase in its unemployment rate was associated with a 2 percentage point decline in its inflation rate. Then, during several recent years, the short-run pattern changed such that its inflation rate rose by 3 percentage points for every 1 percentage point drop in its unemployment rate. Graphically, did East Confetti鈥檚 Phillips Curve shift upward or did it shift downward? Explain.
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.