Question

Suppose the economy is initially in long-run equilibrium. Then, suppose a new technology is introduced that boots productivity across key strategic sectors in the economy. According to the model of aggregate demand and aggregate supply, what happens to prices and output in the short run?

a- Prices rise and output falls.

b- Prices fall and output falls.

c-Prices fall and output rises.

d- Prices rise and output rises.

Answer #1

Option C is correct - Price falls and output rises

The introduction of new technology increases productivity in the economy. Increase in productivity means that now more output can be produced using same amount of labors or factors of production.

This increase in productivity will shift the short run aggregate supply curve (SRAS) to the right. This rightward shift in the SRAS curve (keeping the aggregate demand curve the same) will lead to increase in output level and decrease in the price level.

This indicates that greater output can be produced at every price level now. Thus an introduction of new technology that improves productivity leads to fall in price level and rise in output.

suppose the Fed reduces the money supply in an economy initially in
long run equilibrium.
a. what will happen to output and prices in short run
b. what will happen to unemployment in short run
c. what will happen to output and prices in long run

-Assume that the economy is initially in equilibrium at full
employment. Suppose that the Fed decreases money supply by 5
percent.
(a) Using an aggregate demand and supply graph (discussed in
Chapter 22), explain exactly what happens and why to aggregate
output (real GDP) and the inflation rate in the short run.
(b) Using the same aggregate demand and supply graph, explain
exactly what happens and why to aggregate output (real GDP) and the
inflation rate in the long run.

Assume that the economy is initially in equilibrium at full
employment. Suppose that the fed decreases money supply by 5
percent.
Using an aggregate demand and supply graph ( discussed in
chapter 22 ), explain exactly what happens and why to aggregate
output (real GDP) and the inflation rate in the short run.
(b) Using the same aggregate demand and supply graph, explain
exactly what happens and why to aggregate output (real GDP) and the
inflation rate rate in the...

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a. Using the infinite line tool , draw both the short run and
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be the equilibrium. Label these "SRAS" and "LRAS",
respectively.
b. Using the 3-pt curve tool ,...

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(a) Suppose the economy is initially in long-run equilibrium
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(b) Suppose the economy is then hit by an adverse supply shock,
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Suppose the economy is in long run equilibrium, with real GDP at
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Illustrate the short run effects on the macroeconomy by using the
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1. In the short-run IS-LM model with income taxation, taxes are
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Select one:
a. to the left by 1000.
b. to the right by 3000.
c. to the right by 3750
d. to the right by 1875.
2.
Suppose that the adult population in an economy is 28 million,...

Assume that an economy is initially operating at the natural
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,
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(b) According to the sticky-price model, the value of α depends
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Suppose that stagflation occurs. To help economy go back to its
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