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Need some help with these questions, thanks! In the late 1920s and early 1930s, the U.S. economy was caught in a downward spiral that would
Need some help with these questions, thanks!
In the late 1920s and early 1930s, the U.S. economy was caught in a downward spiral that would later become known as the Great Depression. Output and prices both plummeted as unemployment skyrocketed and factories lay idle. The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves for the United States in 1929. Shift one of the curves on the following graph to illustrate the impact of the Great Depression. O AS AD AS PRICE LEVEL (CPI) AD REAL GDP (Billions of dollars)During World War I and World War II, the U.S. government spent large sums of money on the war effort. Following both of these periods, the United States experienced double-digit inflation. The following diagram shows the aggregate demand (AD) and aggregate supply (AS) curves for the United States before the inflationary period. Shift one of the curves to illustrate the primary cause of the inflation described in the preceding paragraph. O AD AS AS PRICE LEVEL AD REAL GDP This kind of inflation is called inflation. Inflation of this type is accompanied by in aggregate output.The following graph represents the shortrun aggregate supply curve (SEAS) based on an expected price level of 120. The economy's full employment output level is $9 trillion. Major unions across the country have recently negotiated threeyear wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 80. Show the shortrun effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. 2-10 El 200 S [1 SRAS[12D] I .. 160 E E J E m 12:: J LIJ Q a: CL 31] 4o n n 3 o a 12 15 13 REAL GDP {Tn'llions of dollars) Interpret the change you drew on the previous graph by lling in the blanks in the following paragraph: The lowerthanexpected price level causes rms to earn v prot than they expected on each unit of output they produce, and, therefore, they 7 their production level. At the same time, the real value of wages and other resource prices is 7 than workers and rms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level v its full-employment output, and the unemployment rate is v than its natural rate. Now, suppose prices remain lower than expected. its a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the longrun aggregate supply curve [LRAS] at fullemployment output for this economy as well as the same initial short run aggregate supply curve as in the rst graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibriumStep by Step Solution
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