Question

Question #2

Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run? Explain each one in 2-3 lines maximum.

a. An increase in aggregate demand.

b. A decrease in aggregate supply, with no change in aggregate demand.

c. Equal increases in aggregate demand and aggregate supply.

d. A decrease in aggregate demand.

e. An increase in aggregate demand that exceeds an increase in aggregate supply

Answer 1

Ans) It is given that the price level is adaptable and are working at the full degree of employment. At that point, the accompanying things will affect the equilibrium output and price level in the accompanying manners:

A) "An increase in aggregate demand" will just make the circumstance of abundance request, which will squeeze the harmony costs by the degree of the increment in the aggregate demand on the grounds that the output level can't be changed for what it's worth at its full- employmnet level.

B) "A decrease in aggregate supply" will make the circumstance of under-business harmony as it will make upward weight on the costs because of the circumstance of more interest comparative with its inventory. Subsequently, the yield level would diminish because of an abatement in total inventory.

C) As total supply can't go past its full-employment level of output in the short run likewise except if the development of assets happens. It would suggest a circumstance of overabundance request, which would squeeze the pricce, and there will be no adjustment in the output.

D) "A decrease in aggregate demand" will make a circumstance of lacking interest, which would make an economy to under-employement balance. It would roll out a descending change in the price, and furthermore because of absence of creation and pay age, the output would get decreased.

E) "An increase in aggregate demand that exceeds an increase in aggregate supply", which, thus, prompts the circumstance of abundance request. There will be a ramifications of the expansion in the costs, and the real output level would be at the equivalent on the grounds that there is no propensity of output to go past the full employment level.