Long-run aggregate supply curve, Macroeconomics

Suppose the potential level of real domestic output (Q) for a hypothetical economy is

$160 and the price level (P) initially is 200. Use the following short-run aggregate supply schedules to answer the questions.

AS (P = 200) AS (P = 210) AS (P = 190)

P     Q      P    Q     P    Q

210 190 210 160 210 220

200 160 200 130 200 190

190 130 190 100 190 160

(a) What will be the short-run level of real GDP if the price level rises unexpectedly from 200 to 210 because of an increase in aggregate demand? Falls unexpectedly from 200 to 190 because of a decrease in aggregate demand?

Explain each situation.

(b) What will be the long-run level of real GDP when the price level rises from 200 to 210? Falls from 200 to 190? Explain each situation.

(c) Show the circumstances described in (a) and (b) on the graph below and derive the long-run aggregate supply curve.

Posted Date: 3/13/2013 2:34:34 AM | Location : United States







Related Discussions:- Long-run aggregate supply curve, Assignment Help, Ask Question on Long-run aggregate supply curve, Get Answer, Expert's Help, Long-run aggregate supply curve Discussions

Write discussion on Long-run aggregate supply curve
Your posts are moderated
Related Questions

Suppose the utility function is given by: u(x,y) = 3x+4y. What kind of goods are X and Y and what is the MRS?

determinants of money supply

If demand increases and the supply increases also, then what will happen to the new equilibrium price and equilibrium quantity? Explain what is happening with the curves and how pr

When investment banks underwrite IPOs, they are typically sell stock for 5-10 percent more than they pay for it. When they underwrite stock for companies that are already public, t

Q. Investment demand of the AS-AD model? Investment demand. As long as we keep nominal interest rate (and thus real interest rates) constant, there is no reason for demand for

Snake Farm Inc. (SFI) has been offered to submit a competitive bid for building 31 and 22, 18, and 11offshore pits per year for Athletic Inc. over the next four years.  If the bid

Christina Romer and Jared Bernstein in "The Job Impact of the American Recovery and Reinvestment Plan" calibrated the impact of the proposed expansionary fiscal policy (we know it

Income and Substitution Effects of a Price Change Indifference curve analysis can be used to separate the income effect (IE) from substitution effect (SE). This is shown in Fig

when the income velocity of circulation (V) rises, why does the economy''s total output must rise?