Homework in 20 X 2 a Why They curve ward in the strin is the short the vero the native output in care in the con des from the sector AZ BBS for competitory of some gestowy to change in the price Supos me are the prime for the products in advance, based on spet price level of 100 for the coming. Many of oneseler gods mops and to high cost of ring if they change it. The tweet to be 110. iced with homens them to chcette at the orice ale from og wil on that catalogs wird by the quantity Outut they encugh ace high costs of ting price, the expected not in the price levels the preto the naturale out in the son Suppose the economy thouge (AS) prve given by the following ustion Channel ww Xwplied - Natural Level of Chupa *** (stwa - Poor Bele) The Greek lettera representer that determine how much responds to repected changes in the price level. In this case, une thor = 2 . That is when the actual price levels the expected price vel by 1, they sold wil stered the natural level of output hy Supore the ratio ottis $80 bin of real GOP and that people expecte level of 110 A On the flowing me opinamond symbol) to plotthus economy's long rung CLAS) Corve. Then use the range nement complet the economy's start-ruegerepate.(AS) curve at each of the following price levels 100. 106, 110, 115 120 H411 14 th JE The Greater that ponds to special changes in to the price in ce tepeched by the food weder Support the people expect now 32 22 dB on meie ma to compete wy), wat freemeteo menos prepare Annet act of 100, 101, 10, 11 AS URAS CE LEVEL A O OUTPUT Homework (Ch 20) Attempts Average/3 6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how 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 + ax (Price Level actual - Price Level Exposed) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $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 (CRAS) curve. Then use the orange nint the momin's shortenin at sunny (AScurye at each of the following price levels: 100, 105, 110, 115, amework (Ch 20) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $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 fevet 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. 125 120 AS 115 110 105 LRAS PRICE LEVEL 100 95 90 00 75 0 10 20 20 50 100 30 40 50 00 70 OUTPUT (Bions of dollars) Homework in 20 X 2 a Why They curve ward in the strin is the short the vero the native output in care in the con des from the sector AZ BBS for competitory of some gestowy to change in the price Supos me are the prime for the products in advance, based on spet price level of 100 for the coming. Many of oneseler gods mops and to high cost of ring if they change it. The tweet to be 110. iced with homens them to chcette at the orice ale from og wil on that catalogs wird by the quantity Outut they encugh ace high costs of ting price, the expected not in the price levels the preto the naturale out in the son Suppose the economy thouge (AS) prve given by the following ustion Channel ww Xwplied - Natural Level of Chupa *** (stwa - Poor Bele) The Greek lettera representer that determine how much responds to repected changes in the price level. In this case, une thor = 2 . That is when the actual price levels the expected price vel by 1, they sold wil stered the natural level of output hy Supore the ratio ottis $80 bin of real GOP and that people expecte level of 110 A On the flowing me opinamond symbol) to plotthus economy's long rung CLAS) Corve. Then use the range nement complet the economy's start-ruegerepate.(AS) curve at each of the following price levels 100. 106, 110, 115 120 H411 14 th JE The Greater that ponds to special changes in to the price in ce tepeched by the food weder Support the people expect now 32 22 dB on meie ma to compete wy), wat freemeteo menos prepare Annet act of 100, 101, 10, 11 AS URAS CE LEVEL A O OUTPUT Homework (Ch 20) Attempts Average/3 6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how 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 + ax (Price Level actual - Price Level Exposed) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $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 (CRAS) curve. Then use the orange nint the momin's shortenin at sunny (AScurye at each of the following price levels: 100, 105, 110, 115, amework (Ch 20) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $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 fevet 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. 125 120 AS 115 110 105 LRAS PRICE LEVEL 100 95 90 00 75 0 10 20 20 50 100 30 40 50 00 70 OUTPUT (Bions of dollars)