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Chapter 24: Q 31. (page 602)

Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?

Short Answer

Expert verified

Yes there are varied solutions to the shift of the AD curve.

Step by step solution

01

Step 1. Definition

The AD curve is a curve that shows that if there is an increase in price level and you will be moving along the AD, so there will be an increase in the amount of real GDP which will be produced in an economy.

02

Step 2. Explanation

Suppose that the aggregate supply doesn鈥檛 change and remains constant. When an AD curve shifts towards the right, there is an optimistic or positive effect on real GDP and the price level. That means the real GDP will increase and there is upward pressure on the price level when there is a right shift on the AD curve.

03

Step 3. Additional explanation

On the other hand, if we suppose that the aggregate supply remains constant. When the AD curve shifts towards the left there is a negative effect on both the price level and the real GDP. This means that the real GDP will fall and also there is a fall in the price level.

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Most popular questions from this chapter

In your view, is the economy currently operating in the Keynesian, intermediate or neoclassical portion of the economy鈥檚 aggregate supply curve?

Review the problem in the Work It Out titled

"Interpreting the AD/AS Model." Like the information provided in that feature, Table 24.2shows information on aggregate supply, aggregate demand, and the price

level for the imaginary country of Xurbia.

a. Plot the AD/AS diagram from the data. Identify

the equilibrium.

b. Imagine that, as a result of a government tax

cut, aggregate demand becomes higher by 50at

every price level. Identify the new equilibrium.

c. How will the new equilibrium alter output? How

will it alter the price level? What do you think

will happen to employment?

Many financial analysts and economists eagerly await the press releases for the reports on the home price index and consumer confidence index. What would be the effects of a negative report on both of these? What about a positive report?

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

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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