Question

 Answer the following questions on the basis of the three sets of data for the country of North Vaudeville.

 a. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville?

 The data in A

 Which set of data illustrates aggregate supply in the short run in North Vaudeville?

 The data in (Click to select) 

 Which set of data illustrates aggregate supply in the long run in North Vaudeville?

 The data in (Click to select)

 b. Assuming no change in hours of work, if real output per hour of work increases by 5 percent, what will be the new level of real GDP in the right column of B?

 Instructions: Round your answers to 2 decimal places.

 With a price level of 110, new output=

 With a price level of 100, new output=

 With a price level of 95, new output=

 With a price level of 90, new output=

 Does the new data reflect an increase in aggregate supply or does it indicate a decrease in aggregate supply?

Answer 1

(a)

In immediate short run, price level remains fixed at each level of output because doesn't have time to adjust.

Hence, the data in C illustrates aggregate supply in the immediate short run in North Vaudeville.

In short run both price level and output changes.

Hence, the data in B illustrates aggregate supply in the short run in North Vaudeville.

In long run, output remains fixed but price can vary. It means output remains fixed at each level of price.

Hence, the data in A illustrates aggregate supply in the long run in North Vaudeville.

(b)

Column B
Price Level	Real GDP	New level of real GDP
110	275	288.75
100	250	262.5
95	225	236.25
90	200	210

New real GDP = Real GDP *(1 + 0.05)

With a price level of 110, new output = 288.75

With a price level of 100, new output = 262.5

With a price level of 95, new output = 236.25

With a price level of 90, new output = 210

The new data reflect an increase in aggregate supply.

Answer: Increase.