Reference no: EM133198229 , Length: 2 Pages

Assignment:

1. Explain how the following changes in aggregate demand or short-run aggregate supply, other things held unchanged, are likely to affect the level of total output and the price level in theshortrun.

a. An increase in aggregate demand

b. A decrease in aggregate demand

c. An increase in short-run aggregate supply

d. A reduction in short-run aggregate supply

2. Use the model of aggregate demand and short-run aggregate supply to explain how each of thefollowing would affect real GDP and the price level in the short run.

a. An increase in government purchases

b. A reduction in nominal wages

c. A major improvement in technology

d. A reduction in net exports

3. How would an increase in the supply of labor affect the natural level of employment and potential output? How would it affect the real wage, the level of real GDP, and the price level in the short run? How would it affect long-run aggregate supply? What kind of gaps would be created?Be sure to analyze the effect on all six variables, as well as the gap generated.

4. Suppose the minimum wage were increased sharply. How would this affect the equilibrium price level and output level in the model of aggregate demand and aggregate supply in the short run? In the long run?

5. Explain the short-run impact of each of the following.

a. An increase in the payroll tax.

b. An impactful innovation in solar energy transformation, making energy exponentially cheaper.

6. Suppose the aggregate demand and short-run aggregate supply schedules for an economy whose potential output equals $2,700 are given by the table.

	Aggregate Quantity of Goods and Services
Price Level	Demanded	Supplied
0.50	$3,500	$1,000
0.75	$3,000	$2,000
1.00	$2,500	$2,500
1.25	$2,000	$2,700
1.50	$1,500	$2,800

a. Draw the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.

b. State the short-run equilibrium level of real GDP and the price level.

c. Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?

d. Now suppose aggregate demand increases by $700 at each price level; for example, the aggregate quantity of goods and services demanded at a price level of 0.50 now equals $4,200. Show the new aggregate demand curve, state the new short-run equilibrium price level and real GDP, and state whether there is an inflationary or a recessionary gap and give its size.

7. An economy is characterized by the values in the table for aggregate demand and short-run aggregate supply. Its potential output is $1,500.

	Aggregate Quantity of Goods and Services
Price Level	Demanded	Supplied
0.50	$3,500	$1,000
0.75	$3,000	$2,000
1.00	$2,500	$2,500
1.25	$2,000	$2,700
1.50	$1,500	$2,800

a) Draw the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.

b) State the equilibrium level of real GDP and the price level.

c) Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?

d) Now suppose that nominal wages rise and that the price level required to induce a particular level of total output rises by 0.50. For example, a price level of 1.00 is now required to induce producers to produce a real GDP of $1,500. Show the new short-run run aggregate supply curve, state the new equilibrium price level and real GDP, and state whether there is an inflationary or a recessionary gap and give its size. Why might such a change occur?

8. According to Alaskan state economist Mark Edwards, the multiplier effect of Alaska's trade withJapan is such that for every $1 billion exported from Alaska to Japan another $600 million isadded to the state's economy (Volz, 2004). Calculate the size of the export multiplier.

9. Suppose real GDP increases during President Trump's term in office at a 5% rate. Would that imply that his policies were successful in "growing the economy"? Why or why not?

10. The population of the world in 2003 was 6.314 billion. It grew between 1975 and 2003 at an annual rate of 1.6%. Assume that it continues to grow at this rate.

1. Compute the doubling time.

2. Estimate the world population in 2048 and 2093 (assuming all other things remain unchanged).

11. Suppose the information below characterizes an economy:

Employment (millions)	Real GDP (billions)
1	200
2	700
3	1100
4	1400
5	1650
6	1850

a. Construct the aggregate production function for this economy.

b. What kind of returns does this economy experience? How do you know?

c. Assuming that total available employment is 7 million, draw the economy's long-run aggregate supply curve.

Suppose that improvement in technology means that real GDP at each level of employment risesby $200 billion.

d. Construct the new aggregate production function for this economy.

e. Construct the new long-run aggregate supply curve for the economy.