econ 105_tut question_chapter 23%2624_students

As the price level rises desired aggregate

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Unformatted text preview: rises. As the price level rises, desired aggregate expenditure is choked off—this is a movement upward and along the new AD curve. Thus Economy A, the one with demand-determined output has a larger multiplier than Economy B 3. Suppose that the Japan’s economy is currently in long-run equilibrium. 010_1 a. Draw a correctly labelled graph of aggregate demand and short run aggregate supply and show each of the following. i. The long-run aggregate supply curve, labelled as LRAS. ii. The current equilibrium output and price levels, labelled as YE and PLE, respectively. LRAS Price Level AS1 AS0 a negative AS shock PL1 A adjustment process PL2 = PLE B Y1 Y2 = YE =Y* 3 / 4 AD Real GDP SFU Econ 105 Week 9 Summer 2013 b. Consider the following news article from New York Times, USA, March 13, 2011. …….While the nation[Japan]’s industrial clusters in the south and west seemed to be spared the worst, the crisis at damaged nuclear plants north of Tokyo was threatening to cause an energy squeeze that could set back all sectors of Japan’s economy. To help bring electricity back to the devastated areas, utilities across Japan are cutting back and sharing power, imposing rolling blackouts that will affect factories, stores and homes throughout the nation. The emergency effort is expected to last up to two weeks, but could take longer i. What kind of shock occurred- AD or AS? Explain and show the effects of the shock on the short run economy. This is a cause of a negative AS shock; Japan’s industries faced a temporary shortage of electricity supply that lowers productivity. Therefore, unit costs would rise over all levels of real GDP. ii. On the graph in part (a), show the likely short run macroeconomic equilibrium in Japan’ economy, in collaboration with your analysis in part (b), labelled as Y1 and PL...
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