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11 Sep 2018

1. Assume the economy is in a recession. Using aggregate demand(AD) and aggregate supply (AS), the economic situation of arecession can be shown as:

A. Macroeconomic equilibrium is achieved where the AD curveintersects the AS curve to the right of potential output

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Hubert Koch
Hubert KochLv2
12 Sep 2018
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Related questions

In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.

A) macroeconomic equilibrium

B) aggregate supply (AS)

C) aggregate demand (AD)

D) potential GDP

The AS/AD model is an excellent way to understand how specific policies and actions affect output and prices in an economy. Think about these questions as you discuss this topic:

What is the aggregate demand (AD) curve? What are the components of AD? What factors can shift the AD curve?

What is the difference between the long-run aggregate supply curve and the short-run aggregate supply curve?

What is MPC? How does the spending multiplier work?

Assume that initially economy is in the long-run equilibrium. For each of the following scenarios, say what will happen in the long run.

1. Because of a negative demand shock output in the short run is below original potential output. In the long run

A.) Equilibrium is achieved at a higher level of potential output.

B.) AD shifts to the left and brings economy back to original potential output.

C.) SRAS shifts to the left and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) Equilibrium is achieved at a lower level of potential output.

F.) SRAS shifts to the right and brings economy back to original potential output. .


2. Because of a negative temporary supply shock current output is below original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) New long-run equilibrium is achieved at a higher level of potential output.

C.) AD shifts to the left and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) New long-run equilibrium is achieved at a lower level of potential output.

F.) SRAS shifts to the left and brings economy back to original potential output. .

3. Because of a positive demand shock current output is above original potential output. In the long run

A.) AD shifts to the left and brings economy back to original potential output.

B.) New long-run equilibrium is achieved at a higher level of potential output.

C.) AD shifts to the right and brings economy back to original potential output.

D.) New long-run equilibrium is achieved at a lower level of potential output.

E.) SRAS shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a lower level of potential output. 


4. Because of a positive temporary supply shock current output is above original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) AD shifts to the left and brings economy back to original potential output.

C.) New long-run equilibrium is achieved at a lower level of potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) SRAS shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a higher level of potential output. .


5. Because of a positive permanent supply shock current output is above original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) SRAS shifts to the left and brings economy back to original potential output.

C.) AD shifts to the right and brings economy back to original potential output.

D.) New long-run equilibrium is achieved at a lower level of potential output.

E.) New long-run equilibrium is achieved at a higher level of potential output.

F.) AD shifts to the left and brings economy back to original potential output. .

6. Because of a negative permanent supply shock current output is below original potential output. In the long run

A.) New long-run equilibrium is achieved at a lower level of potential output.

B.) SRAS shifts to the left and brings economy back to original potential output.

C.) SRAS shifts to the right and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) AD shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a higher level of potential output.

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