Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Q. 10 (page 229)

Assume that the economy is in long-run equilibrium with complete information and that input prices adjust rapidly to changes in the prices of goods and services. If there is a rise in the price level induced by an increase in aggregate demand. what happens to real GDP?

Short Answer

Expert verified

There'll no be any increase within the equilibrium level of real GDP, butthe worth level increases.

Step by step solution

01

Given Information

LRAS curve at E2 which causes a rise within the equilibrium index from 1to 2. there'll not be any increase within the equilibrium real GDP because the economy is working at the long term equilibrium level.

02

Explanation

An increasewithin the aggregate demandwithin the short run causesa rise inindicant and real GDP. However,within the long term because the wages adjust and increase atthe identical pacethere'll no be any increasewithin the equilibrium level of real GDP, butthe worth level increases.

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.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

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 during the past 3years, equilibrium real GDP in a country rose steadily, from 450 billion to500 billion, but even though the position of its aggregate demand curve remained unchanged, its equilibrium price level steadily declined, from 110to 103. What could have accounted for these outcomes, and what is the term for the change in the price level experienced by this country?

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?

As more of the nation's systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time?

Why might a return of the U.S. population growth rate to its prior level also tend to boost the growth of U.S. Long-run aggregate supply? (Hint: Recall that real GDP growth is generated by the contributions of growth in labour and capital and growth in productivity of these resources.)

Identify the combined shifts in long-run aggregate supply and aggregate demand that could explain the following simultaneous occurrences,

a. An increase in equilibrium real GDP and an increase in the equilibrium price level

b. A decrease in equilibrium real GDP with no change in the equilibrium price level

c. An increase in equilibrium real GDP with no change in the equilibrium price level

d. A decrease in equilibrium real GDP and a decrease in the equilibrium price level
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free