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ch20hw - fall c Aggregate Supply shifts right There is an...

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Chapter 20 - Homework Suggested Solutions Problem 8 : When aggregate demand decreases along a fixed aggregate supply curve, both the price level and the output level drop. As aggregate output declines, fewer workers are needed and unemployment rises. Problem 9: Yes, this could occur if aggregate supply and aggregate demand increased. Both curves would shift to the right, but the aggregate supply curve would shift more than the aggregate demand curve. This would force down the price level while increasing production. Increased production and a lower price level would also occur if aggregate supply increased along a fixed demand curve. Problem 15: a. Neither curve would shift. A change in the price level would cause a movement along the curves. b. Aggregate Demand shifts left because less consumer confidence reduces the aggregate output demanded at each price level. Therefore, both aggregate output and the price level
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Unformatted text preview: fall. c. Aggregate Supply shifts right. There is an increase in the aggregate output supplied at each price level. Therefore, aggregate output increases and the price level falls. d. Aggregate Supply shifts left as the costs of production have risen. Therefore, aggregate output falls and the price level rises Problem 16: Lower tax rates were intended to increase after-tax earnings and thus increase incentives for resource owners to provide labor and capital. The resulting rightward shift in Aggregate Supply would increase aggregate output and lower the price level. The increase in after-tax earnings would also increase Aggregate Demand, which would increase aggregate output and raise the price level. The overall impact on the price level would depend on the relative sizes of the shifts in the aggregate supply and the aggregate demand....
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