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 1. Key facts about economic fluctuations The following graph approximates business cycles in the United States from the first quarter of 1947 to the third quarter of 1951. The vertical blue bar coincides with periods of 6 or more months of declining real gross domestic product (real GDP). 2170 2070 1970 - 1870 - REAL GDP (Billions of dollars) 1770 1947 1948 1949 1950 1951 Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often referred to as V . True or False: Shortterm fluctuations in real GDP are irregular and unpredictable. O True O False Which of the following probably occurred as the U.S. economy experienced increasing real GDP in 1950? Check all that apply. C] Total real income increased. C] Consumer spending declined. C] The unemployment rate declined. C] Corporate profits increased. Notice that real GDP trends upward over time but experiences ups and downs in the short run. These short-run fluctuations in real GDP are often referred to as v . the business cycle True or False: ns in real GDP are irregular and unpredictable. recessions O Tru- expansions O Fals Which of the following probably occurred as the U.S. economy experienced increasing real GDP in 1950? Check all that apply. C] Total real income increased. C] Consumer spending declined. C] The unemployment rate declined. C] Corporate profits increased. 2. Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as V . In the short run, however, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. You will identify some of the missing labels in the questions that follow. 2. Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and economy can produce, a V variable. The notion that an increase in the quantity of money will impact the price level but put level is known as V . In the short run, however, most economists belie | and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. You will identify some of the missing labels in the questions that follow. 2. Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V e notion that an increase in the quantity of money will impact the price level but not the output level is known as In the short run, however, most economists believe that real and nominal variables are intertwined. use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. You will identify some of the missing labels in the questions that follow. 2. Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V variable. The notion that an increase in the V quantity of money will impact the price level but not the output level is known as nominal . -ut level. The following graph shows an incomplete In the short run, however, most economists believe that real and nominal variables a -d. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the lo - short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs appropriate labels for the axes and curves. You will identify some of the missing labels in the questions that follow. 2. Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a V variable, will cause the price level, a V variable, to increase but will have no longrun effect on the quantity of goods and services the economy can produce, a V variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as V . price neutrality In the short run, however, most economists believe that real and nominal variabl omists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around th the quantity theory The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagramit needs the axes and curves. You will identify some of moneta neutralit the missing labels in the questions that follow. ry y \\,/ AS 2 s AD HORIZONTALAXIS The horizontal axis of the aggregate demand and aggregate supply model measures the overall V . The aggregate V curve shows the quantity of goods and services that firms produce and sell at each price level. AS VERTICAL AXIS AD demand HORIZONTAL AXIS price level quantity of output supply The horizontal axis of the aggregate demand and aggregate supply model measures the overall The aggregate curve shows the quantity of goods and services that firms produce and sell at each price level.AS VERTICAL AXIS AD HORIZONTAL AXIS demand The horizontal aggregate demand and aggregate supply model measures the overall supply The aggregate curve shows the quantity of goods and services that firms produce and sell at each price level.3. Why the aggregate demand curve slopes downward The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 160 150 140 A 130 PRICE LEVEL 120 B 110 AD 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars)As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore V , and the number of foreign products purchased by domestic consumers and firms (imports) will V . Net exports will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known a V effect. rise Additionally, as the price level falls, the impact on the d- fa\" will cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased b ) will therefore V , and the number of foreign _ , _ remain the same , products purchased by domestic consumers and rms (I V . Net exports Will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. \"5e rice level falls, the impact on the domestic interest rate will cause the real value of the dollar to V in foreign exchange fa\" r of domestic products purchased by foreigners (exports) will therefore V , and the number of foreign y domestic consumers and firms (imports) will V . Net exports will therefore V , remain the same of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. exchange rate Additionally, as the price level falls, the impact on the domes i|| cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased by for interest rate will therefore V , and the number of foreign products purchased by domestic consumers and firms (impo V . Net exports will therefore V , wealth causing the quantity of domestic output demanded to . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore V products purchased by domestic consumers and firms (imports) will V . Net exports will theref causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. rise As the price level falls, the cost of borrowing money will V , causing t demanded to V . This phenomenon is known as the V effect. fall remain the same Additionally, as the price level falls, the impact on the domestic interest rate will cause the r r to V in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore V , and the number of foreign products purchased by domestic consumers and firms (imports) will V . Net exports will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will 9 the quantity of output demanded to _ , rise V . This phenomenon IS known as the fall Additionally, as the price level falls, the impact on the domestic inte e real value of the dollar to V in foreign exchange remain the same markets. The number of domestic products purchased by foreigners ore V , and the number of foreign products purchased by domestic consumers and firms (imports) will V . Net exports will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output deman rise V . This phenomenon is known as the V effect. fall Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to remain the same markets. The number of domestic products purchased by foreigners (exports) will therefore V , a products purchased by domestic consumers and firms (imports) will V . Net exports will therefore causing the quantity of domestic output demanded to V . This phenomenon is known as the As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known V effect. Additionally, as the price level falls, the impact on the remain the same te will cause the real value of the dollar to V in foreign exchange markets. The number of domestic products purchased rts) will therefore V , and the number of foreign products purchased by domestic consumers and firms V . Net exports will therefore V , causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. As the price level falls, the cost of borrowing money will V , causing the quantity of output demanded to V . This phenomenon is known as the V effect. exchange rate Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar interest rate exchange markets. The number of domestic products purchased by foreigners (exports) will therefore er of foreign wealth products purchased by domestic consumers and firms (imports) will V . Net exports will the causing the quantity of domestic output demanded to V . This phenomenon is known as the V effect. 4. Determinants of aggregate demand The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, whe previously it was $300 billion. 170 160 150 140 130 PRICE LEVEL 120 AD 2 110 AD 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars)The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Consumer expectations about future profitability V Government spending Expected rate of return on investment