Directions: Use the five problems below to help guide you in answering a series of questions on the Blackboard course page. I would go through these problems in detail first before trying to answer questions.
1. We learned about two competing theories regarding the economy in both the short-run and the long-run with Say and Keynes. Consider the following characteristics and determine whether it is more reflective of Say or Keynes.
a. More dependent on government.
b. Believe demand creates supply.
c. Believe supply creates demand.
d. Limited government
e. More concerned with the short run
f. More concerned with the long run
2. Refer to Table 11.10 below. It describes the economy of DeBaliviere.
Price Level Aggregate Demand Aggregate Supply
100 600 460
110 590 500
120 580 530
130 570 550
140 560 560
150 550 570
3.
a. Plot the points for Aggregate Demand and Aggregate Supply by labeling the vertical axis (y-axis) ‘Price Level’ and the horizontal axis (x-axis) ‘Real GDP’.
b. Based on this information, would you say that DeBaliviere’s economy is doing well or not?
c. Where is the SR macroequilibrium, which means where is equilibrium price level and equilibrium real GDP?
3. Describe whether the following events would increase or decrease aggregate supply.
a. An increase in gas prices
b. Decrease in innovation
c. Increase in college graduates
d. A decrease in the price of paper
e. Severe weather significantly reduced the yields of wheat production
4. Describe whether the following events would increase or decrease aggregate demand.
a. Congress increases highway spending.
b. CEOs feel more confident about the economy.
c. Consumer confidence is plummeting.
d. Congress raises income taxes.
e. More Americans feel uncertain about their job security
5. Refer to Figure 11.12: AD/AS Model.
a. Which event would could describe a movement from Aggregate Demand 1 to Aggregate Demand 2?
1) What impact would this have on unemployment? inflation?
b. Why would there be a shift of the Short Run Aggregate Supply 1 to Short Run Aggregate Supply 2?
c. What would be the new equilibrium price level and equilibrium output after the shifts of aggregate demand and aggregate supply?