Question

Suppose that the table below shows an economy’s relationship between real output and the inputs needed to produce that output:

Input Quantity	Real GDP
300.00	$400
225.00	300
150.00	200

a. What is the level of productivity in this economy?

Instructions: Round your answer to two decimal places.



b. What is the per-unit cost of production if the price of each input unit is $3?

Instructions: Round your answer to two decimal places.

$

c. Assume that the input price increases from $3 to $4 with no accompanying change in productivity.

What is the new per-unit cost of production?

Instructions: Round your answer to two decimal places.

$

In what direction would the $1 increase in input price push the aggregate supply curve?

The aggregate supply curve would shift to the (Click to select)leftright.

What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select)Price level would decrease and real output would remain the same.Price level would increase and real output would decrease.Price level would decrease and real output would increase.Both price level and real output would remain the same.

d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 75% percent. What would be the new per-unit cost of production?

Instructions: Round your answer to three decimal places.

$

What effect would this change in per-unit production cost have on the short-run aggregate supply curve?

The aggregate supply curve will shift to the (Click to select)leftright.

What effect would this shift of the short-run aggregate supply have on the price level and the level of real output? (Click to select)Price level would decrease and real output would remain the same.Price level would decrease and real output would increase.Price level would increase and real output would decrease.Both price level and real output would remain the same.

Answer 1

a)

Productivity = Real GDP/Input

Productivity = 1.33

b)

Price of unit input = 3

Per unit cost = Input/GDP*Price of input.

the per-unit cost of production = 2.25

c)

Price of unit input = 4

the per-unit cost of production = 3

The aggregate supply curve would shift to the left

.Price level would increase and real output would decrease.

d)

Productivity increases by 75% percent. Thus the new productivity is 1.33*75% of 1.33 = 2.33

Real GDP = Input * Productivity

the per-unit cost of production = 1.288

The aggregate supply curve will shift to the right

.Price level would decrease and real output would increase