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Chapter 24: Q 24. (page 602)

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

Short Answer

Expert verified

There are various reasons for this shift which we discuss below.

Step by step solution

01

Step 1. Definition

The SRAS (short-run aggregate supply) curve is a curve that shows that if there is an increase in price level and you will be moving along the SRAS, there will be an increase in the amount of real GDP which will be produced in an economy.

02

Step 2. Explanation

When an economy is below its potential the SRAS curve is near horizontal shape on its far left. In this situation unemployment is high, various industries are idle and work on less capacity as compared to past, and a little rise in the price level will have a large increase in production.

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Most popular questions from this chapter

The imaginary country of Harris Island has the

aggregate supply and aggregate demand curves as Table 24.3shows.

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 275at every price level.

Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original

output, price level, and employment?

Name some factors that could cause the SRAS curve to shift, and say whether they would shift SRAS to the right or to the left.

How is pressure for inflationary price increases shown in an AD/AS model?

Economists expect that as the labor market continues to tighten going into the latter part of 2015that workers should begin to expect wage increases in 2015and 2016. Assuming this occurs and it was the only development in the labor market that year, how would this affect the AS curve? What if it was also accompanied by an increase in worker productivity?

If firms become more optimistic about the future of the economy and, at the same time, innovation in 3-D printing makes most workers more productive, what is the combined effect on output, employment, and the price-level?
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