HomeworkLib
Question

Use an AD and AS graph (and words) to explain the short-run and long-run effects on...

Use an AD and AS graph (and words) to explain the short-run and long-run effects on real GDP and price level of a decrease in net exports. Assume the economy begins at full employment. Be sure to state what happens to price level and Real GDP in both the short-run and long-run and how the economy transitions from short to long-run. (YOU MUST DRAW A GRAPH)

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Net exports is one of the components of aggregate demand, so decrease in net exports leads to decrease in aggregate demand that shifts the AD curve leftward to AD'. Short run equilibrium reaches at e' where price level and output both decrease.

Over time nominal wages will fall because less than full employment level of output is produced. This decreases the cost of production that leads to increase aggregate supply. So SRAS curve shifts rightward to SRAS'. Long run equilibrium reaches at e'' where price level falls further and output returns to initial potential level.

0 0
Add a comment
Know the answer?
Add Answer to:
Use an AD and AS graph (and words) to explain the short-run and long-run effects on...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Assume the U.S. economy is in both short-run and long-run equilibrium, as shown in the graph...

    Assume the U.S. economy is in both short-run and long-run equilibrium, as shown in the graph below. Suppose the federal government increases the amount of spending on the military. either the new a. Show the effect on the short-run equilibrium as a result of increased government spending. Using the graph, dra AD curve or new AS curve resulting from this change in spending. Instructions: Use the tool provided 'New Curve' to plot the appropriate line. After placing the curve, click...

  • Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs....

    Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs. Long Run Aggregate Supply Draw the economy at full employment 1. In the short run, wages and resource prices will as price levels increase 2. In the long run, wages and resource prices will as price levels increase Shifters of AD and AS Shifters of Aggregate Demand Shifters of Aggregate Supply imi Recessionary Gap Draw an economy in a recession Inflationary Gap Draw an...

  • The graph shows the economy in long-run equilibrium Then the world economy expands and the demand...

    The graph shows the economy in long-run equilibrium Then the world economy expands and the demand for U.S.-produced goods increases Price level (GDP deflator, 2009-100) 14 Draw a curve that shows 1) the effect of increased demand for U.S.-produced goods. Label it 1 2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new long-run equilibrium 13 SAS 12 An economy is in a long-run equilibrium....

  • The graphs illustrate an initial equilibrium for the economy. Suppose that oil prices temporarily decrease Use...

    The graphs illustrate an initial equilibrium for the economy. Suppose that oil prices temporarily decrease Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) in both the short run and the long run, as well as the short-run and long-run equilibriums resulting from this change. Then, indicate what happens to the price level and GDP in the short run and in the long run. Short-run graph Long-run graph...

  • Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS) framework, discuss the short-run and long-run effects of a decrease in government expe...

    Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS) framework, discuss the short-run and long-run effects of a decrease in government expenditure on the price level, real output, nominal wage rate and real wage rate under the following three alternative assumptions: nominal wages are fully flexible nominal wages are relatively slow to adjust nominal wages are completely rigid.                                                

  • drawing the graph of AD (Aggregate Demand), SRAS (Short- run aggregate supply curve) and LRAS (...

    drawing the graph of AD (Aggregate Demand), SRAS (Short- run aggregate supply curve) and LRAS ( long run aggregate supply curve) and writing down what would happen under the two conditions "increase personal income taxes" and "decrease personal income taxes". You need to write down everything happens by following the seven steps: 1. What would happen under the condition? (Whether AD, SRAS, or LRAS would change? And in which direction the curve would shift?) 2. Where is the new short-run...

  • Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be su...

    Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...

  • AD-AS and Phillip Curve Model, Money Market and Banking System Graphically illustrate an economy in the...

    AD-AS and Phillip Curve Model, Money Market and Banking System Graphically illustrate an economy in the long run equilibrium, producing at the full employment level of production. Indicate the equilibrium Price level (P*) and the level of real GDP (Y*) Graphically illustrate an economy in the short run equilibrium producing at a below full employment level of production. Indicate the equilibrium Price level (P*) and the level of real GDP (Y*) and show the amount of the recessionary gap. Graphically...

  • 1. What is on the horizontal axis and the vertical axis of the AD-AS graph? Or...

    1. What is on the horizontal axis and the vertical axis of the AD-AS graph? Or explain what Y and P are, and how they are measured. 2. What is the major difference between the AE model and the AD-AS model? 3. Suppose a recession is characterized by a decrease in real GDP and a decrease in the price level. What could be the cause of the recession? 4. Suppose a recession is characterized by a decrease in real GDP...

  • Assume an economy operating below full employment. Draw a correctly labeled AD/AS graph showing: the problem...

    Assume an economy operating below full employment. Draw a correctly labeled AD/AS graph showing: the problem in the economy current price level and output full employment output Identify an open market operation that the Fed could implement to resolve the problem. Using a correctly labeled money market graph with a side-by-side investment demand graph, show the effect of the policy you identified in part B on each of the following: nominal interest rates quantity of investment demanded On your graph...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT