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O Aplia: Student Question x C Courses aplia.co servlet/quiz?quiz action takeQuiz&quiz; probGuid QNAPCOA801010000002edbee20090000&ctx; sarna-0004&ck; 4 1462138550845 0AAA055 a E Aa Aa E. 6. El The following graph shows several shifts in the short-run aggregate supply (AS) and aggregate demand (AD) for a hypothetical economy. Initially, the expected price level of 90 is equal to the actual price level and the economy is in long-run equilibrium at its natural rate of output, $80 billion. Note that this long-run equilibrium oocurs at the intersection of AD and Asi, point A. Use the graph to identify the path of price level and output movements that occur in response to the following events. AS1 Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting good and services, and increases the costs of producing goods and services in this economy. The increase in production costs ft from the short and moves the economy from point A to point run. Note: For simplicity, ignore any possible impact of the severe weather on the natural rate of output.) The short-run economic outcome resulting from the increase in production costs is known as If, during the transition from the short run to the long run, firms and workers respond to the initial shock of severe weather by negotiating higher wages, the economy will move from the point you just found to point absence of govemment intervention, the level of employment and output attained in the short run will eventually pressure on wages and prices as the economy transitions from the short run to the begin to put long run. In the long run, the price level in the economy will be and the quantity of output in the economy billion S9:31 Timeout I'm Cortana. Ask me anything 5/1/2016Explanation / Answer
The increase in production cost will shift AS from AS1 to AS2 and economy moves from point A to point B. the short run economic outcome resulting from the increase in production costs is known as stagflation.
As increase in production costs lead to left side shift of AS curve resulting in increase in price level and fall in output.
If, during the transition from the short run to the long run, firms and workers respond to the initial shock of svere weather by negotiating higher wages, the economy will move from the point you just found to point C. In the absence of government intervention, the level of employment and output attained in the short run will eventually begin to put downward pressure on wages and prices as the economy transitions from the short run to the long run. In the long run, the price level in the economy will be 90 , and the quantity of output in the economy will be $80 billion.
Increased wgaes will shift AS curve further left. But in long run reduced output will reduce demand of labir and so prices of labor will go down and gradually economy will shift back to its original equilibrium.
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