As price of U.S. goods increase prices, inputs increase slowly/ Increase sales=Increase production(move up SRAS) 11. Which of these factors would result in a shift in the SRAS? a. Increase in the size of the labor force and the size of the capital stock. b. Technological change. c. Expected changes in the future price level. d. Adjustments of workers and firms to errors in past expectations about the price level. e. Supply shock. ALL OF THEM 12. Draw a graph of the LR macroeconomic equilibrium where AD = LRAS = SRAS at price level equals 100 and output at potential, . Label the axes. Explain. Y 13. Starting from LR equilibrium in no. 12 above, show how a leftward shift in AD or SRAS can cause a recession. a. Describe the economy’s automatic adjustment mechanism back to . At the new LR equilibrium, is the price level higher or lower than P=100? Y b. In which case do we have stagflation? 14. Starting from LR equilibrium in no. 12 above, show how a rightward shift in AD can be cause an inflationary situation. a. Describe the economy’s automatic adjustment mechanism back to . At the new LR equilibrium, is the price level higher or lower than P=100? Y 15. What is the dynamic AD/AS model? Why are AD/LRAS and SRAS usually shifting rightward over time? Increase Labor Force/ Increase U.S. Capital Stock/ Technological Progress 16. What 3 factors combined to create a “perfect storm” and resulted in a financial crisis and Great Recession in the U.S. 2007-2009? (notes 11/30 and pages 440-441) Bubble Burst/ Financial Crisis/ GDP GAP
17. Define GDP gap. Is the gap positive or negative when the U.S. is in recession?