In the short run, the increase in government spending on infrastructure causes the price level to (rise above, fall below) the price level people expected and the quantity of output to (rise above, fall below) the natural level of output. The IS curve shifts rightward to IS' . • If SAS increases to SAS 1, equilibrium output decreases to Y 1 and the price level increases to P 1 (point G). a. Answer: C 19) The data in the above table indicate that when the price level is 100, A) inventories fall and the price level rises. The increase in government spending will cause the unemployment rate to (rise above, fall below) the natural rate of unemployment in the short run. A short-run model of the output market in an open ... • With fixed price levels at home and abroad, a rise in the nominal exchange rate makes foreign goods and services more expensive relative to domestic goods and services. In the long run, the short-run aggregate-supply curve shifts to the left to restore equilibrium at point C, with unchanged output and a higher price level compared to point A. c. A technological improvement raises productivity Equilibrium output is Y 0 and the price level is P 0. A line drawn through points A, B, and C traces out the short-run aggregate supply curve SRAS. Next, suppose that the price level rises from 120 to 130. Answer: A 9) The quantity of real GDP demanded equals $12.2 trillion when the price level is 90. Short-Run Short-Run Equilibrium Equilibrium Real output Price level Y 0 P 0 E AD G SAS 1 SAS 0 Y 1 P 1 • Short-run equilibrium is where SAS 0 = AD (point E). If aggregate demand decreases to AD3, in the short run, both real GDP and the price level fall. The domestic unemployment rate falls below its normal (full-employment) level. B) the economy is in a long-run macroeconomic equilibrium. Y 0 SAS 0 A line drawn through points A, B, and C traces out the short-run aggregate supply curve SRAS. b. the price level rises and real GDP falls. wages, employment taxes. Unit labour costs are also affected by the level of labour productivity Real GDP rises and the price level necessarily falls. $. B) $12.2 trillion. If aggregate demand decreases to AD 3, in the short run, both real GDP and the price level fall. b. A) inventories fall and the price level rises. By how much will real output increase in the short run? The price level rises and Real GDP falls. In the short run, the economy moves from point A to point B, as output and the price level rise. If aggregate demand increases to AD2, in the short run, both real GDP and the price level rise. _____ In the long run? What is the effect on the price level and Real GDP in the short run? The domestic currency devalues and Π rises, reducing the real exchange rate, shifting world demand onto domestic goods and increasing the level of output the short run when the price level is inflexible. Inflation is the persistent rise in the general price level of goods and services. Disinflation is a decline in the rate of inflation; it is a slowdown in the rise in price level. a. C) inventories rise and the price level falls. If aggregate demand shifts left, then in the short run a. the price level and real GDP both rise. This output level is the economy’s potential (or full-employment) level of output. C) higher price level results in a lower interest rate. Instructions: Enter your answers as whole numbers. Shifts in Short Run Aggregate Supply (SRAS) Shifts in the position of the short run aggregate supply curve in the price level / output space are caused by changes in the conditions of supply for different sectors of the economy: Employment costs e.g. Starting from short-run equilibrium, prices of natural resources around the world increases. c. the price level falls and real GDP rises. $._____ b. d. Real GDP falls and the effect on the price level cannot be determined 13. d. the price and real GDP both fall. If aggregate demand increases to AD 2, in the short run, both real GDP and the price level rise. D) lower price level results in inflationary conditions. D) the unemployment rate is at its equilibrium level. If the price level rises to 95, the quantity of real GDP demanded equals A) less than $12.2 trillion. As an example, assume inflation in an economy grows from 2% to 6% in Year 1, for a … ... • Domestic price level
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