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What effects would each of the following have on aggregate demand or aggregate supply, other things equal? What are the expected effects on the equilibrium

  1. What effects would each of the following have on aggregate demand or aggregate supply, other things equal? What are the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward?
  2. A widespread fear by consumers of impending economic depression.
  3. A new national tax on producers based on the value-added between the costs of the inputs and the revenue received from their output.
  4. A reduction in interest rates at each price level.
  5. A major increase in spending for health care by the Federal government.
  6. The general expectation of coming rapid inflation.
  7. The complete disintegration of OPEC, causing oil prices to fall by one-half.
  8. A 10 percent across-the-board reduction in personal income tax rates.
  9. A sizable increase in labor productivity (with no change in nominal wages).
  10. A 12 percent increase in nominal wages (with no change in productivity).
  11. An increase in exports that exceeds an increase in imports (not due to tariffs).
  12. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below:

Amount of Real GDP Demanded, Billions

Price Level (Price Index)

Amount of Real GDP Supplied, Billions

$100

300

$450

200

250

400

300

200

300

400

150

200

500

100

100

  1. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy?
  2. If the price level in this economy is 150, will the quantity demanded equal, exceed, or fall short of the quantity supplied? By what amount? If the price level is 250, will the quantity demanded equal, exceed, or fall short of the quantity supplied? By what amount?
  3. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What is the new equilibrium price level and level of real output?
  4. In the EPA article, "Climate Impacts in the Midwest," the City of Chicago reports that the Midwest's participation in some areas increased by 20% due to climate change. "Projections of future precipitation indicate that heavy downpours are likely to occur primarily in winter and spring months while summers will become drier." Considering that Midwest is a large agricultural base, what is the effect on output, price level, and employment in this area? Use the AD/AS diagram to analyze these changes.
  5. The U.S. Central Intelligence Agency's World Factbook offers many comparative tables of world data. Go to this site and find the following:
    1. The countries with the highest and lowest real GDPs
    2. The countries with the highest and lowest per capita real GDPs, adjusted for purchasing power
    3. The countries with the most equal and least equal income distributions
    4. The countries with the highest and lowest real GDP growth rates
    5. The countries with the highest and lowest unemployment rates
    6. One determinant of the productivity of labor is the human capital, or the skills and education of the labor force. Which countries spend the most on education? The least? Are there any general relationships between the level of development and the amount spent on education?
    7. Where does the United States rank in these categories? Did any of these statistics surprise you?

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