MindTap . Cengage MINDTAP a Search this course? ? Hunte Homework (Ch 33) natural
ID: 1161416 • Letter: M
Question
MindTap . Cengage MINDTAP a Search this course? ? Hunte Homework (Ch 33) natural level of output, $100 suppose w?in the world's man od roduong regon sharply reduces the world producing goods and services in this ecenomy billion. supply, aiing ol prem to nse and Kreaung-eeee d Use the graph to help you answer the questions about the short-run and long-n offects of the inorease in production couts thet Kollow. (Note: Yo will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the higher oil prices on the natural level of ouitput OUTPUT (Bions of dollars short-run economie outoome resulting from the inerqese in prodution costs is known as the short fun accommodetive poicy by increasing government parchases in resconse to t Now suppose that the govemment mmediately parsues an 2-36 PMMExplanation / Answer
The short-run economic outcome resulting from the increase in production cost is known as stagflation ( As output is decreased and at the same time inflation is increased)
In the long run, when the government pursues accommodative policy, the output in the economy will be 100 billion and the price level will be increased. ( As aggregate demand will be increased after increasing government purchase, AD curve will shift to the right which takes the equilibrium output back to the long run equilibrium and price will be increased)