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Chapter 11: Q. 5 (page 251)

What determines how much real GDP responds to changes in the price level along the short-run aggregate supply curve?

Short Answer

Expert verified

As the result,a modification in the optimal price level may force the GDP to react quickly.

Step by step solution

01

Step: 1 Short run supply curve:

In the short run, the price of production factors affect just how GDP responds to price fluctuations. The supply curve is steeper, implying that people are better informed in the short run and prices respond more quickly.

02

Step: 2 Result:

In above disscussion the result as,a modification in the optimal price level may force the GDP to react quickly.

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Most popular questions from this chapter

How do you suppose that the increase in Japan's consumption tax rate affected the nation's equilibrium price level, other things being equal?

Take a look at Figure 11-4. If the Federal Reserve increases the quantity of money in circulation sufficiently to generate a rightward shift in the aggregate demand curve by $0.5trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain.

Consider Figure 11-9. Suppose that businesses in this nation initially had been exporting significant amounts of domestically produced goods and services abroad. Assume that other nations of the world have experienced a sudden decline in economic conditions. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain.

Determine the causes of short-run variations in the inflation rate

Suppose that there is a temporary, but significant, increase in oil prices in an economy with an upward-sloping SRAS curve. If policymakers wish to prevent the equilibrium price level from changing in response to the oil price increase, should they increase or decrease the quantity of money in circulation? Why?
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