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The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the right from AS1 to AS2, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion.
The following table lists several determinants of short-run aggregate supply.
Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply.
Change Necessary to Increase AS
Regulations on the firm    
Human capital    
Input prices    

The following table lists several determinants of short-run aggregate supply.Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply.Change Necessary to Increase ASRegulations on the firmDecrease   Human capitalImproves   Inpu...

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Posted by Cleveland on September 16, 2024

6. Why the aggregate supply curve slopes upward in the short run

In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen.
For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 110. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will    , and firms that rely on catalogs will respond by    the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected increase in the price level causes the quantity of output supplied to    the natural level of output in the short run.
Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation:
Quantity of Output Supplied = Natural Level of Output+α×Price LevelActual−Price LevelExpected
The Greek letter α represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that α=$2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion.
Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 110.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115, and 120.
The short-run quantity of output supplied by firms will fall short of the natural level of output when the actual price level    the price level that people expected.

In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen.For example, the sticky-price theory asserts t...

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Posted by Cleveland on September 16, 2024

5. The slope and position of the long-run aggregate supply curve

Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply.
Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $60 billion.
Using the purple points (diamond symbol) plot the economy's long-run aggregate supply (LRAS) curve on the graph.
Suppose now the government passes a law that significantly increases the minimum wage. This change in policy will cause the natural rate of unemployment to    , which will:
Complete the following table by determining how each event impacts the position of the long-run aggregate supply (LRAS) curve.
Direction of LRAS Curve Shift
A government-sponsored training program increases the skill level of the workforce.    
The government allows more immigration of working-age adults who find work.    
A scientific breakthrough significantly increases food production per acre of farmland.    

Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? Check all that apply.The inflation rateThe quantity of physical capitalThe price levelThe level of technological knowled...

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Posted by Cleveland on September 16, 2024
The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion.
The following table lists several determinants of aggregate demand.
Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand.
Change Required to Increase AD
Expected rate of return on investment    
Incomes in other countries    
Wealth    
Taxes    

Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand.Change Required to Increase ADExpected rate of return on investmentIncrease   Incomes in other countriesIncrease   WealthIncrease   TaxesDecrease &nbs...

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Posted by Cleveland on September 16, 2024

3. Why the aggregate demand curve slopes downward

The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $500 billion, and the price level is 120. Moving up along the AD curve from point X to point Y, the quantity of output demanded falls to $300 billion, and the price level rises to 140.
As the price level rises, the purchasing power of households' real wealth will    , causing the quantity of output demanded to    . This phenomenon is known as the    effect.
Additionally, as the price level rises, the impact on the domestic interest rate will cause the real value of the dollar to    in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore    , and the number of foreign products purchased by domestic consumers and firms (imports) will    . Net exports will therefore    , causing the quantity of domestic output demanded to    . This phenomenon is known as the    effect.

As the price level rises, the purchasing power of households' real wealth willfall   , causing the quantity of output demanded tofall   . This phenomenon is known as thewealth   effect.Points:1 / 1Close ExplanationExplanation:Households often hold some of their wealth i...

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Posted by Cleveland on September 16, 2024
A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another.
For example, an increase in the money supply, a    variable, will cause the price level, a    variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a    variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as    .
However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram—it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels.
The aggregate    curve shows the quantity of goods and services that firms produce and sell at each price level.
The horizontal axis of the aggregate demand and aggregate supply model measures the overall    .

A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another.For example, an increase in the money supply, anominal   variable, will cause the price level, anominal   variable, to increase but wi...

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Posted by Cleveland on September 16, 2024
Gavin and Allison are having drinks after work. After several rounds, the topic of Gavin’s sports car comes up. Gavin is extremely proud of his sports car and brags about it all the time. To impress Allison, Gavin offers to sell Allison his expensive sports car for $5,000. Allison jumps at the deal, because she knows the car is worth much more than $5,000. They even write the “deal” down on a napkin, and both Gavin and Allison sign the napkin. The next morning, when Allison brings $5,000 to purchase the sports car, Gavin explodes. Gavin tells Allison that he was just kidding and that he would never sell his expensive sports car for such a low price. When Allison tries to enforce the deal:

Gavin can either rescind the contract based on incapacity or ratify the contract....

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Posted by Cleveland on September 13, 2024
Marie and Molly enter into a written contract to sell Marie’s home to Molly. At the time the contract is executed, Marie tells Molly that for the last six months she has been sharing the home with a family of extraterrestrial beings. Marie states that she has asked the extraterrestrials to move out, but they won’t; therefore, she is selling the family home to get rid of them and is willing to sell the home to Molly for well below market price. After the sale of the home is complete, Marie’s children challenge the sales contract on the grounds that Marie did not have the mental capacity necessary to enter into a contract, even though Marie has not been declared incompetent by the courts. The contract between Marie and Molly can be rescinded:

if Marie’s children can prove that Marie lacked the mental capacity to comprehend the nature, purpose, and consequences of the contract....

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Posted by Cleveland on September 13, 2024
Ruby, a seventeen-year-old, purchases a car from Smitz Used Auto Sales and agrees to pay for it over a period of twenty-four months. Ruby makes the payments for four months but then decides the car payment is too much for her limited budget. Ruby tells Smitz that she wants to stop making payments and that she wants out of the contract completely. The contract between Ruby and Smitz can be canceled by:

Ruby, because she is a minor, but Ruby must return the car....

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Posted by Cleveland on September 13, 2024
Lupita enters into a contract with Faith to purchase a used car. At the time they sign the contract, Lupita appears to be very intoxicated. Faith notices this but signs the contract anyway. If Lupita later decides she wants to get out of the contract:

Lupita can raise the defense of lack of contractual capacity due to intoxication....

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Posted by Cleveland on September 13, 2024