Question

Will the price level always rise when AD increases? Take time to review a graph of...

Will the price level always rise when AD increases? Take time to review a graph of a macro equilibrium to get a good visual, before answering this question. Explain your answer and provide your rationale.
Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The Price level will not always rise when AD in an economy increases, Suppose suppliers respond by increasing production to meet the demands of the consumers the price level may even fall lower than the initial level

Suppose an economy is initially at an equilibrium where AS and AD intersect at point A with a price level PA. When AD increases the equilibrium shifts to Point B with an increased price of P?B. In case the AS in the economy increases shifting AS to AS', the new equilibrium is at point ?C ?and the price is at P?C which is actually lower than the initial price level of P?A. Hence it is not always true that the price level increases when AD increases.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
3. An economy is initially at a long run equilibrium (GE). A. On the AD-AS graph,...
3. An economy is initially at a long run equilibrium (GE). A. On the AD-AS graph, show the AD, LRAS and SRAS curves/lines. Label this “A” B. The Central Bank (Federal Reserve) increases the money supply. Give one action the Fed can take to increase the money supply.       _________________________________ Show how this changes the AD-AS graph. Label the curve/line that shifts with a “2” and label the new equilibrium “B”       There is no additional policy action: C. Show...
Aggregate Demand: Draw me an AD graph, start at equilibrium of Price Level 5 and RGDP...
Aggregate Demand: Draw me an AD graph, start at equilibrium of Price Level 5 and RGDP at 100. Due to poor COVID management assume Europeans have less faith in the US economy. IE exchange rates go from 1 dollar : 2 euros to 1 dollar to 1 euro. Show me this, assume the shift changes Price Level by 2 and RGDP by 20. What effect from class is this and explain the shift.
Applying the AD/AS Model (please use graph a long with your answer) Consider the following two...
Applying the AD/AS Model (please use graph a long with your answer) Consider the following two events (i) Growth Surges in East Asia (ii) A sharp increase in oil price Use the AD-AS model to explain the seperate effects of each event on real GDP and the price level, starting from long-run equilibrium
Consider the AD-AS model, with the AD curve derived from the quantity theory of money. Suppose...
Consider the AD-AS model, with the AD curve derived from the quantity theory of money. Suppose the economy is initially in long-run equilibrium, when there is a sudden rise in demand for real balances for any given level of output, and simultaneously also an improvement in productive technology that permanently increases how much firms can produce with any given amount of the factors of production. (a) Immediately following these shocks, what happens to velocity? To the AD curve? The LRAS...
In the market for hot dogs, what happens when the price of beef goes up and...
In the market for hot dogs, what happens when the price of beef goes up and the price of hot dog buns goes up? [hot dogs are made of beef. Also, the term "hot dog" here refers to just the sausage. So you buy hot dogs at the store. And you also buy "hot dog buns" at the store. This gets confusing for some people, especially non-native English speakers] What happens to supply and demand in the market for hot...
In this question, you should analyze the effect of price control to keep low inflation rate...
In this question, you should analyze the effect of price control to keep low inflation rate in the AD-AS framework. For simplicity, assume that the economy is in a full employment equilibrium initially. The government controls prices in stores to avoid inflation. Namely, they do not allow the changes in prices in stores. What would happen to output and the price level when the central bank increases money supply? Explain using the AD-AS diagram. What would happen to output and...
A. Aggregate Demand, Aggregate Supply, and Equilibrium For a hypothetical economy, the aggregate-demand (AD), short-run aggregate...
A. Aggregate Demand, Aggregate Supply, and Equilibrium For a hypothetical economy, the aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules are as follows. The schedules show the GDP price deflator (P) versus real GDP (Q), with Q measured in billions of constant dollars. P AD AS ASLR 80 30 22 30 90 28 24 30 100 26 26 30 110 24 28 30 120 22 30 30 130 20 32 30 A1. GRAPHS: Graph the AD, AS,...
1. In response to a shortage in a market, the price will rise until it equals...
1. In response to a shortage in a market, the price will rise until it equals the equilibrium price. The shortage is then eliminated. But there are numerous instances where it describes shortages at stores where prices rise, but long lines of consumers persist, and stores have sold out of some of these products. Explain why price increases haven’t eliminated the shortages. 2. Some retailers, including Target and Amazon, are limiting the purchases of some items they sell and “…penalizing...
1. In response to a shortage in a market, the price will rise until it equals...
1. In response to a shortage in a market, the price will rise until it equals the equilibrium price. The shortage is then eliminated. But there are numerous instances where it describes shortages at stores where prices rise, but long lines of consumers persist, and stores have sold out of some of these products. Explain why price increases haven’t eliminated the shortages. 2. Some retailers, including Target and Amazon, are limiting the purchases of some items they sell and “…penalizing...
Question 2. An oil cartel effectively increases the price of oil by 100 percent, leading to...
Question 2. An oil cartel effectively increases the price of oil by 100 percent, leading to an adverse supply shock in both Country A and Country B. Both countries were in long-run equilibrium at the same level of output and prices at the time of the shock. The central bank of Country A takes no stabilizing-policy actions. After the short-run impacts of the adverse supply shock become apparent, the central bank of Country B increases the money supply to return...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT