Chapter 9 Macro (20 Econ)

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”.

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”.

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”.