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Chapter 24: Q 25. (page 602)

Briefly explain the reason for the near-vertical shape of the SRAS curve on its far right.

Short Answer

Expert verified

The reasons why the SRAS curve is near vertical on its far-right are given 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

On its far-right, the SRAS curve is vertical because the main reason is that the economy is doing great and operating at its full capacity.it does not matter what the price levels are because companies are not able to produce more, the reason is that they (workers and companies) already working with their full capability.

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Most popular questions from this chapter

A policymaker claims that tax cuts led the economy out of a recession. Can we use the AD/AS diagram to show this?

Do neoclassical economists believe in Keynes鈥� law or Say鈥檚 law?

Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. If a large percentage of factories and utility companies use natural gas, what will happen to output, the price level, and employment as fracking becomes more widely used?

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?

Suppose concerns about the size of the federal budget deficit led the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?
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