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Chapter 10: Q. 5 (page 228)

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

Short Answer

Expert verified

a. Rightward shift of aggregate demand curve should be quite the rightward shift of long-run aggregate supply curve.

b. Long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

c. Long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

d. Leftward shift of aggregate demand curve should be over the leftward shift of long-run aggregate supply curve.

Step by step solution

01

Rightward Shift (a)

(a) Arise in equilibrium real GDP and a rise within the equilibriumindicator is attained when both long run aggregate supply curve and aggregate demand curve shifts rightwards.
However, rightward shift of aggregate demand curve should bequite the rightward shift of long-run aggregate supply curve.

02

Leftward Shift (b)

(b) A decrease in equilibrium real GDP with no changewithin the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

03

Rightward shift (c)

(c) Arise in equilibrium real GDP with no change within the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

04

Leftward Shift (d)

(d) A decrease in equilibrium real GDP and a decreasewithin the equilibriumprice index is attained when both long-run aggregate supply curve and aggregate demand curve shifts leftwards.
However, leftward shift of aggregate demand curve should beover the leftward shift of long-run aggregate supply curve.

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Most popular questions from this chapter

In Figure 10-2, if the economy acquires a larger amount of capital goods in the current year, does a larger or smaller outward shift in the production possibilities curve result? Does the LRAS curve shift more or less far to the right? Why?

Has China's production possibilities curve been shifting outward or inward were the past 40years? Explain your answer

Explain whether each of the following events would cause a movement along or a shift in the position of the L.RAS curve, other things being equal. In each case, explain the direction of the movement along the curve or shift in its position.

a. Last year, businesses invested in new capital equipment, so this year the nation's capital stock is higher than it was last year.

b. There has been an 8 percent increase in the quantity of money in circulation that has shifted the ADcurve.

c. A hurricane of unprecedented strength has damaged oil rigs, factories, and ports all along the nation's coast.

d. Inflation has occurred during the roast year as a result of rightward shifts of theAD curve.

How are deficiencies in the U.S. river system affecting the extent to which the U.S. long-run aggregate supply curve shifts rightward each year?

Assume that the position of a nation's aggregate demand curve has not changed, but the long-run equilibrium price level has declined. Other things being equal, which of the following factors might account for this event?

a. An increase in labor productivity

b. A decrease in the capital stock

c. A decrease in the quantity of money in circulation

d. The discovery of new mineral resources used to produce various goods

e. A technological improvement
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