Please answer these questions and put them in a readable format (ex. 1a, 1b, 2a, 2b, etc...). No explanation needed. PLEASE SHIFT THE GRAPHS THE WAY THEY NEED TO BE SHIFTED!

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1. Problems and Applications Q1 Suppose the economy is in a longrun equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in aggregate demand. Use your diagram to show what happens to output and the price level in the short run. LRAS O A t S | ggrega e upp y Aggregate Demand El Aggregate Supply E - - - - - - - - - IT A -: I 1 I LRAS I : Aggregate Demand I I I l Quantity of Output As a result of this change, the unemployment rate V . Use the stickywage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy). As a result of this change, the unemployment rate V . Use the sticky-wage theory of aggregate supply to out what will happen to output and the price level in the long run (assuming there is no change in policy). 2. Problems and Applications Q2 Indicate whether each of the following events will increase, decrease, or have no effect on longrun aggregate supply (LRAS). Event Effect on LRAS The United States experiences a wave of immigration. V Congress limits the work week to 40 hours. Intel invents a new and more powerful computer chip. 444 A severe hurricane damages factories along the East Coast. 3. Problems and Applications Q3 Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. LRAS O Aggregate Supply Aggregate Demand Aggregate Supply Price Level Aggregate Demand Quantity of OutputNow adjust the graph to show the new longrun equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? 0 The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. 0 Nominal wages, prices, and perceptions adjust upward to this new price level. 0 The government increases spending to increase aggregate demand. Which of the following is true according to the stickywage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. [3 Nominal wages at the initial equilibrium are greater than nominal wages at the new short-run equilibrium. [:1 Nominal wages at the initial equilibrium are greater than nominal wages at the new longrun equilibrium. [3 Real wages at the initial equilibrium are less than real wages at the new shortrun equilibrium. [3 Real wages at the initial equilibrium are less than real wages at the new long-run equilibrium. Judging by the impact of the money supply on nominal and real wages, this analysis Y consistent with the proposition that money has real effects in the short run but is neutral in the long run. Now adjust the graph to show the new longrun equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? 0 The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. 0 Nominal wages, prices, and perceptions adjust upward to this new price level. 0 The government increases spending to increase aggregate demand. Which of the following is true according to the stickywage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. [3 Nominal wages at the initial equilibrium are greater than nominal wages at the new short-run equilibrium. [:1 Nominal wages at the initial equilibrium are greater than nominal wages at the new longrun equilibrium. [3 Real wages at the initial equilibrium are less than real wages at the new sh quilibrium. [3 Real wages at the initial equilibrium are less than real wages at the new Io uuilibrium. Judging by the impact of the money supply on nominal and real wages, this analysis V consistent with the proposition that money has real effects in the short run but is neutral in the long run. 4. Problems and Applications Q4 In 1939, with the U.S. economy not yet fully recovered from the Great Depression, President Roosevelt proclaimed that Thanksgiving would fall a week earlier than usual so that the shopping period before Christmas would be longer. Graph A Graph B LRAS LRAS Aggregate Supply Aggregate Supply Price Level Price Level Aggregate Demand Aggregate Demand Quantity of Output Quantity of OutputWhich of the graphs represents the state of the economy before this pronouncement? O Graph A O Graph B True or False: President Roosevelt was trying to decrease aggregate supply. O True O False 5. Problems and Applications Q5 True or False: If firms adjusted their prices every day, then the shortrun aggregatesupply curve would be horizontal. O True O False 6. Problems and Applications Q6 Consider the three theories of the upward slope of the shortrun aggregatesupply curve. According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too V According to the sticky-price theory, the economy is in a recession because V . According to the misperceptions theory, the economy is in a recession when suppliers mistakenly believe that the relative price of their goods has V 6. Problems and Applications Q6 Consider the three theories of the upward slope of the shortrun aggregatesupply curve. According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too V According to the misperceptions theory, the economy is in a recession when suppliers mistakenly believe that the relative price of - . d5 has According to the sticky-price theory, the economy is in a recession because V 6. Problems and Applications Q6 Consider the three theories of the upward slope of the short-run aggregate-supply curve. According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too V According to the sticky-price theory, the economy is in a recession because v . people expect prices to rise quickly in a recession According to the misperceptions theory, the economy is in a recession whe of their goods has V - not all prices adjust quickly 6. Problems and Applications Q6 Consider the three theories of the upward slope of the shortrun aggregatesupply curve. According to the sticky-wage theory, the economy is in a recession because the price level has declined so that real wages are too V . -. to the sticky-price theory, the economy is in a recession because fallen - 5 to the misperceptions theory, the economy is in a recession when suppliers mistakenly believe that the relative price of their goods has 7. Problems and Applications Q7 The economy begins in long-run equilibrium. Then one day, the president appoints a new chair of the Federal Reserve. This new chair is well known for her view that inflation is not a major problem for an economy. Note: You will not be graded on any changes you make to the following graph, but you may use it to help you understand the scenario described. LRAS 0 Aggregate Supply Aggregate Demand El Aggregate Supply A Price Level LRAS Aggregate Demand Quantity of Output Which of the following statements accurately describes what would happen as a result of this news? Check all that apply. C] People would expect the price level to rise. C] The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise. C] The profitability of producing goods and services at any given price level would increase. C] The shortrun aggregatesupply curve would shift to the left. If aggregate demand is held constant, the shift in the aggregatesupply curve will cause the price level to V and the quantity of output produced to Y Which of the following statements accurately describes what would happen as a result of this news? Check all that apply. C] People would expect the price level to rise. C] The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise. C] The profitability of producing goods and services at any given price level would increase. fall C] The shortrun aggregatesupply curve would shift to the left. - If aggregate demand is held constant, the shift in the aggregatesupply curve will cause the price level to V and the quantity of output produced to V Which of the following statements accurately describes what would happen as a result of this news? Check all that apply. C] People would expect the price level to rise. C] The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise. C] The profitability of producing goods and services at any given price level would increase. | The shortrun aggregatesupply curve would shift to the left. late demand is held constant, the shift in the aggregatesupply curve will cause the price level to V and the quantity of output produced to 8. Problems and Applications Q8 For each of the following events, use the subsequent graph to illustrate the short-run effect on aggregate supply and aggregate demand. Households decide to save a larger share of their income. LRAS O Aggregate Supply Aggregate Demand O Aggregate Supply Price Level A LRAS Aggregate Demand Quantity of OutputThere is an increase in oil prices. LRAS O Aggregate Supply Aggregate Demand Aggregate Supply Price Level A LRAS Aggregate Demand Quantity of OutputA wave of immigration significantly increases the population. LRAS O Aggregate Supply Aggregate Demand O Aggregate Supply Price Level A LRAS Aggregate Demand Quantity of Output9. Problems and Applications Q9 A recession overseas causes foreigners to buy fewer U.S. goods. On the following graph, indicate the short-run and long-run effects of this change on the economy, assuming policymakers take no action. LRAS O Aggregate Supply Aggregate Demand O Aggregate Supply Price Level A LRAS Aggregate Demand Quantity of OutputIn the short run, the price level and output In the long run, the price level will be and output will be compared to the initial equilibrium prior to the change.decreases Qua increases remains unchanged In the short run, the price level and output In the long run, the price level will be and output will be compared to the initial equilibrium prior to the change.remains unchanged Quantity of Output decreases increases In the short run, the price level v and output v . In the long runl the price level will be V and output will be V compared to the initial equilibrium prior to the change. Quantity of I higher lower In the short run, the price level v and output v . unchanged In the long runl the price level will be V and output will be V compared to the initial equilibrium prior to the change. Quantity of Output lower unchanged In the short run, the price level v and output higher In the long runl the price level will be V and output will be V compared to the initial equilibrium prior to the change. 10. Problems and Applications Q10 Suppose an increase in the money supply leads to a fall in interest rates, thereby encouraging firms to invest more. Show the short-run effect of this change in investment spending on the aggregate-demand curve. LRAS O Aggregate Supply Aggregate Demand O Aggregate Supply Price Level A LRAS Aggregate Demand Quantity of OutputWhich of the following reasons could explain why the aggregate quantity of output supplied changes? Check all that apply. [3 People have misperceptions about the price level. [3 Wages are not sticky. C] Prices are sticky. D The price level has risen. On the preceding graph, show what happens to the short-run aggregate-supply curve in the long run. (Note: For now, assume there is no change in the long-run aggregate-supply curve.) The aggregate quantity of output demanded V between the short run and the long run because the price level V The increase in investment spending might cause the long-run aggregate-supply curve to shift to the Y if it results in a larger capital stock that increases productivity and output in the future. Which of the following reasons could explain why the aggregate quantity of output supplied changes? Check all that apply. [3 People have misperceptions about the price level. [3 Wages are not sticky. C] Prices are sticky. D The price level has risen. On the preceding graph, show what happens to the short-run aggregate-supply curve in the long run. (Note: For now, assume there is no change in the long-run aggregate-supply curve.) The aggregate quantity of output demanded V between the short run and the long run because the price level V increases The increase in investment spending might c -run aggregate-supply curve to shift to the V if it results in a larger capital stock that increases productivity and output in the futu Which of the following reasons could explain why the aggregate quantity of output supplied changes? Check all that apply. [3 People have misperceptions about the price level. [3 Wages are not sticky. C] Prices are sticky. D The price level has risen. On the preceding graph, show what happens to the short-run aggregate-supply curve in the long run. (Note: For now, assume there is no change in the long-run aggregate-supply curve.) The aggregate quantity of output demanded V between the short run and the long run because the price level V The increase in investment spending might cause the long-run aggregate-supply curve to shift to the V if it results in a la ital stock that increases productivity and output in the future. Which of the following reasons could explain why the aggregate quantity of output supplied changes? Check all that apply. [3 People have misperceptions about the price level. [3 Wages are not sticky. C] Prices are sticky. D The price level has risen. On the preceding graph, show what happens to the short-run aggregate-supply curve in the long run. (Note: For now, assume there is no change in the long-run aggregate-supply curve.) - the price level V The aggregate quantity of output demanded V between the short run and the long run The increase in investment spending might cause the long-run aggregate-supply curve to shift to the V if it results in a larger capital stock that increases productivity and output in the future