Answered: LRAS SRAS AD Real GDP Price level

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Measuring A Nation's Income

Section15.3: The Components Of Gdp

Problem 3QQ

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Question

Suppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions.

Adjust graph in picture.

In the short run, price level

a. increases.

b. decreases.

c. The change is indeterminate.

In the short run, real GDP (or aggregate output)

a. The change is indeterminate.

b. decreases.

c. increases.

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