35.1 Distinguish between the short run and the long run as they relate to macroeconomics. Why is the distinction important?
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35.2 Which of the following statements are true? Which are false? Explain why the false statements are untrue.a. Short-run aggregate supply curves reflect an inverse relationship between the price level and the level of real output.b. The long-run aggregate supply curve assumes that nominal wages are fixed.c. In the long run, an increase in the price level will result in an increase in nominal wages.
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35.3 Suppose
the full-employment level of real output (Q) for a hypothetical economy
is $250 and the price level (P) initially is 100. Use the short-run
aggregate supply schedules below to answer the questions that follow:
LO1...a.
What will be the level of real output in the short run if the price
level unexpectedly rises from 100 to 125 because of an increase in
aggregate demand? What if the price level unexpectedly falls from 100 to
75 because of a decrease in aggregate demand? Explain each situation,
using numbers from the table.
b. What will be the level
of real output in the long run when the price level rises from 100 to
125? When it falls from 100 to 75? Explain each situation.
c. Show the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.
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35.4 Use
graphical analysis to show how each of the following would affect, the
economy first in the short run and then in the long run. Assume that the
United States is initially operating at its full-employment level of
output, that prices and wages are eventually flexible both upward and
downward, and that there is no counteracting fiscal or monetary policy.a. Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.b. Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.c. Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.
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35.5 Between
1990 and 2009, the U.S. price level rose by about 64 percent while real
output increased by about 62 percent. Use the aggregate
demand-aggregate supply model to illustrate these outcomes graphically.
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35.6
Assume
there is a particular short-run aggregate supply curve for an economy
and the curve is relevant for several years. Use the AD-AS analysis to
show graphically why higher rates of inflation over this period would be
associated with lower rates of unemployment, and vice versa. What is
this inverse relationship called?
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35.7 Suppose
the government misjudges the natural rate of unemployment to be much
lower than it actually is, and thus undertakes expansionary fiscal and
monetary policies to try to achieve the lower rate. Use the concept of
the short-run Phillips Curve to explain why these policies might at
first succeed. Use the concept of the long-run Phillips Curve to explain
the long-run outcome of these policies.
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35.8 What
do the distinctions between short-run aggregate supply and long-run
aggregate supply have in common with the distinction between the
short-run Phillips Curve and the long-run Phillips Curve? Explain.
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35.9 What
is the Laffer Curve, and how does it relate to supply- side economics?
Why is determining the economy's location on the curve so important in
assessing tax policy?
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35.10 Why
might one person work more, earn more, and pay more income tax when his
or her tax rate is cut, while another person will work less, earn less,
and pay less income tax under the same circumstance?
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35.11 LAST WORD
On average, does an increase in taxes raise or lower real GDP? If taxes
as a percent of GDP go up 1 percent, by how much does real GDP change?
Are the decreases in real GDP caused by tax increases temporary or
permanent? Does the intention of a tax increase matter?
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