Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Unit #3 Key Graphs AS/AD Model PPF Qty Food . (0,100) . . C B (50,50) A (100, 0) Qty Shelter Practice Free Response Answers QUESTION #1 1b) 1a) LRAS1 Price Level SRAS1 SRAS2 P2 ----------- 1c) Actual Price level at (P1) is LOWER than expected price level (which lags!) E1 --------- P1 ----------------- E2 AD1 Y1 Prices & Wages are sticky in the short run. So quantity supplied rises and falls as the price level rises or fall (positive relationship) Example: Price Level ↑ => Nominal Wages unchanged but Real Wages ↓ => So Qty Supplied rises Y* Real GDP Expected price level lags actual price level in both directions (actual price level is the one you are graphing => so if AD shifts left => actual falls immediately…) 1d) Expected price level eventually falls to “catch up” to actual price level => SRAS shifts right to full employment output level (E2) QUESTION #2 2 a,d) 2b) Contractionary Fiscal Policy 2c) Raise income taxes => (C↓) Decrease Gov’t Spending => (G↓ ) Gov’t Budget=> Gov’t revenue ↑ & Gov’t Spending ↓ So overall, deficit shrinks. Could lead to balanced budget or budget surplus in the extreme P2 -------- E2 AD2 Y2 End result: AD shifts left, deficit falls, output returns to full potential (on PPF), 2d) unemployment ↑ price level ↓ R-GDP ↓ 3c) Public savings rises (becomes less negative) so National Savings ↑ QUESTION #3 So Loanable Funds Supply Shifts Right 3c) graph Real Interest Rate r2 S2 -------------- E1 ------------------ E2 --------------------- R1 3d) S1 Q1 Q2 AD shift is indeterminate: G ↓ (Gov’t spending ↓) => AD left BUT Lower real interest rates => increase in Investment ( I↑ ) AD right D1 Increase in Investment ( I↑ ) today mean in the long run: 3e) Qty Loanable Funds PPF: Capital Investment shifts PPF to right in long run 3a) Demand Curve = Investors (business) Investors borrow money for capital goods to expand business… SRAS & LRAS: both shift right as PPF went right UNEMPLOYMENT: r-GDP rises => unemployment rate must fall