ECON 214 InQuizitive ch. 13 Liberty University Solution

Classify each event either as shifting the aggregate demand curve or as causing movement along the curve.

Which of these are conditions for long-run equilibrium in the aggregate demand–aggregate supply model?

What is the meaning of a leftward shift in the long-run aggregate supply (LRAS) curve?

Recessions in the United States occur with regular, predictable frequency; hence the term “business cycle.”

You read a news article reporting that a nation’s real output fell while its inflation rate temporarily jumped up. From this you can conclude that the recession was likely caused by which of these scenarios?

Consider the graph below. Assume that, initially, an economy has long-run aggregate supply corresponding to LRAS, short-run supply corresponding to SRAS1, and aggregate demand corresponding to AD1. Where will the new equilibrium be in the long run if a virus renders a significant fraction of the nation’s computers unusable for two months before a fix is found? (Do not assume that all curves shown actually come into play.)

With the figure for reference, match each shift to the expected consequence on aggregate output (Y), the price level (P), and the unemployment rate (u).

Assume that an economy initially has a long-run aggregate supply curve corresponding to LRAS1 in the graph below. Click on the long-run aggregate supply curve that would most likely result if a new shipping method, using drone technology, made it easier to transport goods between any two locations.

How do aggregate demand and aggregate supply differ from regular demand and supply?

Consider a situation where the residents of a major U.S. trade partner see an increase in their income. Assuming the U.S. economy starts in equilibrium, order the following time periods by price level, from lowest to highest.

Place the three components of aggregate demand in order of relative size, starting with the one representing the largest component of GDP.

There are three reasons for the downward slope of the demand curve: the wealth effect, the interest rate effect, and the international trade effect. Match each effect with the component of aggregate demand it most closely impacts.

This graph illustrates an economy, initially in long-run equilibrium, which then experiences a decrease in short-run aggregate supply (from SRAS1 to SRAS2). Label the two short-run equilibria (before and after the shift) with the appropriate relation between u, the short-run equilibrium unemployment rate, and u*, the natural long-run rate.

A simple model of a firm describes it as an entity that buys – (for example, labor) and sells – (goods and services). A firm’s input prices, which affect costs, are generally – in the short run, while a firm’s output prices, which affect revenue, are –. Therefore, an increase in the short-run price level raises revenue – than costs, so firms produce more in the short run. Consequently, the SRAS curve slopes upward.

Since the beginning of the twentieth century, the United States has experienced –recessions. Of those, – have occurred since 1970.

Since 1985, the highest monthly unemployment rate in the United States was –; this happened in –. Following the recession of 1991-1992, GDP growth was generally strong, at one point exceeding 4% for four consecutive –.