Question

Directions: For each question, draw an economy in equilibrium, labeling the initial equilibrium price level and equilibrium quantity of Real GDP. Then shift the appropriate curve and label the new equilibrium price and equilibrium quantity. Next, fill in the blanks to describe what happened.

1.            There is a decrease in wealth.

The price level will _______________ and Real GDP will _______________.

2.            There is a decrease in wage rates.

The price level will _______________ and Real GDP will _______________.

3.            Consumers start to expect lower future incomes.

The price level will _______________ and Real GDP will _______________.

4.            There is a decrease in productivity.

The price level will _______________ and Real GDP will _______________.

5.            Consumers start to expect higher future prices.

The price level will _______________ and Real GDP will _______________.

6.            There is a decrease in personal income taxes.

The price level will _______________ and Real GDP will _______________.

7.            There is an adverse supply shock.

The price level will _______________ and Real GDP will _______________.

8.            There is an increase in foreign real national income.

The price level will _______________ and Real GDP will _______________.

9.            What will happen if there is a decrease in interest rates at the same time that there is an increase in wage rates, and AD shifts by more than SRAS shifts?

The price level will _______________ and Real GDP will _______________.

10.         What will happen if there is a decrease in the value of the U.S. dollar at the same time that there is a decrease in the prices of non-Labor inputs, and AD and SRAS shift by the same amounts?

The price level will _______________ and Real GDP will _______________.

please draw the answer with the computer way not manually.

Thanks in advance.

Answer 1

1) Decrease in wealth decreases consumption and shifts AD to the left. Price level will decrease and real GDP will decrease.

2) Decrease in wage rates would decrease cost of production and raise profits. Firms will then produce more and so AS shifts to the right. Price level will decrease and real GDP will increase.

3) Consumer are expecting a dismal economy so they curtail consumption and increase saving. This decreases consumption and shifts AD to the left. Price level will decrease and real GDP will decrease.

4) Decrease in productivity will reduce production. Firms will then produce less and so AS shifts to the left. Price level will increase and real GDP will decrease

5) Higher future prices will encourage more consumption now. This increases consumption and shifts AD to the right. Price level will increase and real GDP will increase.

6) Lower income taxes increase disposable income and so this increases consumption and shifts AD to the right. Price level will increase and real GDP will increase.

7) Adverse supply shock will reduce production. Firms will then produce less and so AS shifts to the left. Price level will increase and real GDP will decrease

8) Increase in foreign income increases ours exports so net exports are higher. This shifts AD to the right. Price level will increase and real GDP will increase.

9) Price level will increase and real GDP will increase.

10) Price level will not change and real GDP will increase.