Starting from long-run equilibrium, use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is an increase in wealth
What will be an ideal response?
Before the increase in demand, the economy begins at point A with GDP at Y1. The increase in wealth shifts the aggregate demand curve to the right from AD2 to AD1. As a result, prices rise and output increases. Unemployment also falls as the economy rises above potential GDP (point D). The growing economy causes workers and firms to adjust their expectations about wages and prices upward. As wages and prices rise, this will shift the short-run aggregate supply curve to the left. Eventually, the economy moves to point C, with real GDP restored back to potential GDP at Y1 and prices even higher. The unemployment rate goes back to the natural level.
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What is the quota for "diversity immigrants" into the U.S.?
A. 1 million per year B. 500,000 per year C. 50,000 per year D. 25,000 per year
In the figure above, suppose the price of a pound of pecans is negatively related to the quantity of peanuts that farmers are willing to supply. If the price of pecans increases,
A) the curve will shift rightward. B) the curve will shift leftward. C) there is a movement along the curve. D) the curve will be unaffected. E) None of the above answers is correct because the graph assumes that the price of pecans does not change.
Suppose the quantity demanded of milk increases by 15% when milk prices are decreased by 3%. The price elasticity of demand for milk is
A) elastic and equal to 0.2. B) inelastic and equal to 0.2. C) elastic and equal to 5. D) inelastic and equal to 5.
The schedules in the table give the marginal social benefit and marginal social cost of a DVD. At the efficient quantity, the minimum supply-price of a DVD is ________ and the value of a DVD is ________
A) $16; $24 B) $16; $20 C) $20; $16 D) $20; $20