Answer to Question #92246 in Macroeconomics for Ashleigh

Question

2) [3 points] Suppose an economy is initially at its long-run equilibrium and aggregate demand increases. How do price level, real GDP and nominal wage rate change in the short run?


3) [3 points] What happens to real GDP and the price level when oil prices rise in the short run? Assume that initially the economy is at its long-run equilibrium.


4) [3 points] What happens to real GDP and the price level, if the country receives a positive demand shock and a negative supply shock simultaneously? Discuss only the short run equilibrium. Assume that initially the economy is at its long-run equilibrium.


5) [3 points] Explain how a recessionary gap would still be eliminated even if the government and the central bank do not intervene.

Answer 1

2) In the short run the aggregate level of real GDP, nominal wage rate, and the aggregate price level will increase.

3) The supply curve will shift to the left and real GDP will decrease to its initial level

4) The real GDP will increase; the price level will increase, decrease or remain the same.

5) The recessionary gap can be closed by using the self-correction mechanism acts