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Chapter 24: Q 14. (page 601)

If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

Short Answer

Expert verified

There are various effects overall.

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

Because in the neoclassical zone the SRAS curve is vertical, except if the economy edging the middle zone. Because the decrease in AS will cause a decline in the price levels but there is no effect on the real economic activity like real GDP or employment.

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Most popular questions from this chapter

Suppose Mexico, one of our largest trading partners and purchaser of a large number of our exports, goes into a recession. Use the AD/AS model to determine the likely impact on our equilibrium GDP and price level.

How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?

What is Say’s law?

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

Suppose, after five years of sluggish growth, the European Union's economy picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?
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