3. Starting from short-run equilibrium, the following occurs: Labor productivity rises, and individuals expect higher (future) incomes. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?
a.Real GDP will fall, the unemployment rate will rise, and the price level will rise.
b.Real GDP will rise, the unemployment rate will fall, and the effect on the price level cannot be determined.
c.Real GDP will rise, the unemployment rate will fall, and the price level will fall.
d. Real GDP will fall, the unemployment rate will rise, and the effect on the price level cannot be determined.
e. Real GDP will rise, the unemployment rate will rise, and the price level will rise.
I found out that the answer is b, but why is this the case.
5. Starting from short-run equilibrium, the following occurs: The interest rate rises, and foreign real national income rises. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?
a. The price level will rise, Real GDP will fall, and the unemployment rate will rise.
b The price level will fall, Real GDP will fall, and the unemployment rate will rise.
c. The price level will rise, Real GDP will rise, and the unemployment rate will rise.
d. The price level will fall, Real GDP will fall, and the unemployment rate will fall.
e.There is not enough information to answer this question.
I found out that the answer is e, but why is this the case? I would think that the interest rate rising would affect the aggregate demand curve to shift to the left. Is it the answer e because the foreign real income rises is not enough information to give a complete picture on the effects on the price level, Real GDP, and the unemployment rate in the short run.
6. Starting from short-run equilibrium, the following occurs: Individuals expect higher (future) incomes, and wage rates rise. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?
a. The price level will rise, Real GDP will rise, and the unemployment rate will fall.
b. The price level will fall, Real GDP will fall, and the unemployment rate will rise.
c. The price level will rise, but the effects on Real GDP and the unemployment rate cannot be determined.
d. Real GDP will rise, the unemployment rate will fall, and the effect on the price level cannot be determined.
e. none of the above.
I found out that the answer is c. Why is this the case? The only thing I can think of is that the expectation of higher(future) incomes does not give indication of how the Real GDP and the unemployment rate will go since this is an expectation of what income will be in the future.
3. Draw aggregate supply and demand curves. An increase in productivity causes the supply curve to shift out. An increase in income causes the demand curve to shift out. On your graph, what happens to P ?? and what happens to Q ?? Since Q must have gone up and because labor productivity went up, more labor must have been used -- ergo, unemployment when down.
5. Again start with a supply/demand graph. When interest rates rise, investment falls. Investment is a component of aggregate demand, so aggregate demand falls. However, when income of foreigners rises, they demand more goods, domestic or imported. So, aggregate demand rises.
6. Agains start with a supply/demand graph. When wages rise, supply curve shifts inward. However, an increase in expected future incomes would lead to an increase in demand today -- shift the demand curve outward. (Most people will put more purchases on their credit card if they know (or believe) next years income will be better.) What happens to P ?? what happens to Q??
For question 3, the correct answer is b. When labor productivity rises and individuals expect higher future incomes, it leads to an increase in real GDP and a decrease in the unemployment rate. However, the effect on the price level cannot be determined with the given information. It is possible that the price level could rise, fall, or remain unchanged depending on other factors like the behavior of producers and the overall level of aggregate demand.
For question 5, the correct answer is e. The information given does not provide enough details on the effects on the price level, real GDP, and the unemployment rate. While an increase in interest rates may lead to a decrease in investment and aggregate demand, the increase in foreign real national income could counteract this effect by increasing demand for goods, both domestic and imported. The overall net effect on the price level, real GDP, and the unemployment rate cannot be determined without more information.
For question 6, the correct answer is c. When individuals expect higher future incomes, it may lead to an increase in demand today and shift the demand curve outward. However, the effects on the price level, real GDP, and the unemployment rate cannot be determined with the given information. The expectation of higher future incomes does not directly indicate how the price level and real GDP will change since it is a subjective expectation of future income and not a direct influence on production or prices.
In question 3, the correct answer is b. When labor productivity rises and individuals expect higher future incomes, it leads to an increase in aggregate supply (AS). This causes a shift of the AS curve to the right. As a result, Real GDP increases and the unemployment rate falls. However, the effect on the price level (P) cannot be determined because it depends on the relative magnitude of the shifts in AS and aggregate demand (AD) curves.
In question 5, the correct answer is e. The information provided is not sufficient to determine the effects on the price level, Real GDP, and the unemployment rate. The rise in interest rates will typically lead to a decrease in investment and aggregate demand, while the increase in foreign real national income will increase aggregate demand. The net effect on the price level, Real GDP, and the unemployment rate will depend on the relative magnitudes of these changes, which is not specified in the question.
In question 6, the correct answer is c. When individuals expect higher future incomes, it leads to an increase in aggregate demand (AD) in the short run, shifting the AD curve outwards. However, when wage rates rise, it leads to an increase in costs of production, causing a decrease in aggregate supply (AS). The overall effects on the price level and Real GDP cannot be determined without knowing the relative magnitudes of the shifts in AD and AS curves, but the price level is expected to rise.
Regarding the graph:
- In question 3, when labor productivity increases and more labor is used, it leads to a decrease in unemployment (Q) and an outward shift of the AS curve. The effect on the price level (P) cannot be determined without more information.
- In question 5, the increase in interest rates and decrease in investment causes a decrease in aggregate demand (Q). However, the increase in foreign income leads to an increase in aggregate demand. The effect on the price level (P) cannot be determined without more information.
- In question 6, the increase in expected future incomes leads to an increase in demand and an outward shift of the AD curve. The increase in wage rates leads to a decrease in supply and an inward shift of the AS curve. The effect on the price level (P) cannot be determined without more information.
3. Starting from short-run equilibrium, if labor productivity rises, it will cause the aggregate supply curve to shift outwards. This means that producers are able to produce more output with the same amount of inputs. As a result, Real GDP will rise.
When individuals expect higher future incomes, it affects their spending behavior. They are likely to increase their consumption and investment, leading to an increase in aggregate demand. This will cause the aggregate demand curve to shift outwards.
In the short run, when the aggregate supply curve shifts outwards and the aggregate demand curve shifts outwards as well, the price level is not affected significantly. This is because the increase in supply is matched by an increase in demand, resulting in a proportionate increase in both prices and output. Therefore, the effect on the price level cannot be determined.
However, Real GDP will rise as both aggregate supply and demand increase, indicating an expansionary effect on the economy. Additionally, the increase in output will lead to a decrease in the unemployment rate, as more workers will be needed to produce the higher level of output. Therefore, the correct answer is b: Real GDP will rise, the unemployment rate will fall, and the effect on the price level cannot be determined.
5. Starting from short-run equilibrium, if the interest rate rises, it will primarily affect investment in the economy. When the interest rate is higher, it becomes more expensive for businesses to borrow money to invest. As a result, investment decreases, leading to a decrease in aggregate demand and a leftward shift of the aggregate demand curve.
However, if foreign real national income rises, it means that foreign countries are experiencing economic growth and increased demand for goods and services. This leads to an increase in exports for the domestic economy, which in turn increases domestic aggregate demand and shifts the aggregate demand curve outwards.
Given the conflicting effects on aggregate demand, it is difficult to determine the overall effect on the price level, Real GDP, and the unemployment rate. Therefore, the correct answer is e: There is not enough information to answer this question.
6. Starting from short-run equilibrium, if individuals expect higher future incomes, it will affect their spending behavior. They will likely increase their consumption, leading to an increase in aggregate demand and a rightward shift of the aggregate demand curve.
On the other hand, if wage rates rise, it increases the cost of production for firms. This leads to a decrease in profit margins and discourages firms from hiring additional workers, causing a decrease in employment. As a result, the aggregate supply curve shifts inwards.
The conflicting effects of an increase in expected future incomes and an increase in wage rates make it difficult to determine the effect on the price level. However, there will likely be an increase in Real GDP due to the increase in aggregate demand. Additionally, the effect on the unemployment rate cannot be determined without further information. Therefore, the correct answer is c: The price level will rise, but the effects on Real GDP and the unemployment rate cannot be determined.