Chapter . 9 Macro (20 Econ)

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Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Use the table below to answer the following questions:

Aggregate Price Level Output (short-run aggregate supply) Output (aggregate demand)
150 1000 200
125 800 400
100 600 600
75 400 800
50 200 1000

Question

A. The equilibrium output is Y4X9gzy3nmw=, and the equilibrium price level is $CFJLK+//K6YdPa5j.
Correct! Macroeconomic equilibrium occurs when aggregate demand and short-run aggregate supply are equal. Equilibrium output is 600 and equilibrium price level is $100. For further review see section “Macroeconomic Equilibrium”.
Incorrect! Macroeconomic equilibrium occurs when aggregate demand and short-run aggregate supply are equal. Equilibrium output is 600 and equilibrium price level is $100. For further review see section “Macroeconomic Equilibrium”.

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Aggregate Price Level Output (short-run aggregate supply) Output (aggregate demand)
150 1000 200
125 800 400
100 600 600
75 400 800
50 200 1000

Question

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Aggregate Price Level Output (short-run aggregate supply) Output (aggregate demand)
150 1000 200 + 200 = 400
125 800 400 + 200 = 600
100 600 600 + 200 = 800
75 400 800 + 200 = 1000
50 200 1000 + 200 = 1200

Question

C. If full employment output is 600, is the economy experiencing recessionary or inflationary pressures? bCkp9HavOcIGwl1cYiK5bKGp0gsGRQfBSc+vkv3GnfI=.
Correct! An increase in AD can lead to inflationary pressures. Demand-pull inflation results when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises. This is the situation here. Simply, the equilibrium level of output is above the full employment output. For further review see section “Demand-Pull Inflation”.
Incorrect! An increase in AD can lead to inflationary pressures. Demand-pull inflation results when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises. This is the situation here. Simply, the equilibrium level of output is above the full employment output. For further review see section “Demand-Pull Inflation”.

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Aggregate Price Level Output (short-run aggregate supply) Output (aggregate demand)
150 1000 200 + 200 = 400
125 800 400 + 200 = 600
100 600 600 + 200 = 800
75 400 800 + 200 = 1000
50 200 1000 + 200 = 1200

Question

D. Short-run aggregate supply needs to decrease by ygJZKffxRWs= at every price in order for the economy to return to long-run equilibrium at an output of 600. The aggregate price level at full employment would be $ulD80gzJB74=.
Correct! Because long-run aggregate supply has not changed, the economy will simply return to long-run equilibrium at output level 600. With the new aggregate demand, prices have unexpectedly risen, therefore short-run aggregate supply decreases as workers, for example, adjust their wage demands upward, leaving prices permanently higher. In order to reach the original output of 600, short-run aggregate supply would need to decrease by 200 units at each price level. The aggregate price level is higher at this new equilibrium. It is equal to $125. For further review see section “Demand-Pull Inflation”.
Incorrect! Because long-run aggregate supply has not changed, the economy will simply return to long-run equilibrium at output level 600. With the new aggregate demand, prices have unexpectedly risen, therefore short-run aggregate supply decreases as workers, for example, adjust their wage demands upward, leaving prices permanently higher. In order to reach the original output of 600, short-run aggregate supply would need to decrease by 200 units at each price level. The aggregate price level is higher at this new equilibrium. It is equal to $125. For further review see section “Demand-Pull Inflation”.