Chapter 11: Q21. (page 291)
What is the economic reason why the SRAS curve slopes up?
Short Answer
The SRAS curve is positively inclined because it is closely tied to price level and also due to other economic factors such as flexible input.
Chapter 11: Q21. (page 291)
What is the economic reason why the SRAS curve slopes up?
The SRAS curve is positively inclined because it is closely tied to price level and also due to other economic factors such as flexible input.
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Why would an economist choose either the neoclassical perspective or the Keynesian perspective, but not both?
The short run aggregate supply curve was constructed assuming that as the price of outputs increases, the price of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?
A policymaker claims that tax cuts led the economy out of a recession. Can we use the AD/AS diagram to show this?
Review the problem in the Work It Out titled "Interpreting the AD/AS Model." Like the information provided in that feature, Table 11.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia.
Price Level | AD | AS |
110 | 700 | 600 |
120 | 690 | 640 |
130 | 680 | 680 |
140 | 670 | 720 |
150 | 660 | 740 |
160 | 650 | 760 |
170 | 640 | 770 |
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 50 at 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?
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