--%>

Determine the level of real output in the short run

Assume the full employment level of real output (Q) for a hypothetical economy will be $250 and the price level (P) at first is 100. Employ the short-run aggregate supply schedules below to answer the questions that follow:

 

1530_short-run aggregate supply schedules.png

Determine the level of real output in the short run if the price level unexpectedly increase from 100 to 125 due to an increase in aggregate demand? What if the price level drops unexpectedly from 100 to 75 due to a decrease in aggregate demand? Describe each circumstance, using numbers from the table.

 

E

Expert

Verified

$280; $220. While the price level increase from 100 to 125 [in aggregate supply schedule AS(P100)], producers experience higher prices for their products. Since nominal wages are constant, profits increase and producers raise output to Q = $280. Whereas the price level drop from 100 to 75, profits decline and producers adjust their output to Q = $75. These are short-run responses to changes into the price level.

   Related Questions in Finance Basics

  • Q : Financial crisis during 1997-1998

    Describe the Financial crisis during the time period of 1997-1998 ?

  • Q : How do mergers influence small

    How do mergers influence small businesses?According to a recent study through Federal Reserve & Wharton Financial Institutions Center economists, not a great deal. Their analysis revealed that acquisitions don't seem to be related with a sig

  • Q : Bonds and coupon rate Staind, Inc., has

    Staind, Inc., has 8 percent coupon bonds on the market that have 15 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 9 percent, what is the current bond price?

  • Q : Which ratios would long-term bond

    Which ratios would a potential long-term bond investor is most interested in? Describe. Current & potential lenders of long-term funds, such like banks & bondholders, are interested in debt ratios. While a business's debt ratios rise sig

  • Q : How does preemptive right secure

    How does a preemptive right secure the interests of present stockholders? A preemptive right secure the interests of existing stockholders through giving them the chance to preempt other investors into the purchase of new shares. If these right

  • Q : Meaning of weakens US dollar in

    What does it mean while the U.S. dollar weakens in the foreign exchange market? While the U.S. dollar weakens in the foreign exchange market one U.S. dollar purchase fewer units of another country's currency. It costs more U.S. dollars to purch

  • Q : Major effects of this price floor

    Normal 0 false false

  • Q : Why do assets equal the sum of total

    Why do overall assets equal the sum of total liabilities and equity?  Describe.            Assets = Liabilities + EquityAssets are the items of value business owns. Liabilities ar

  • Q : Aggregate expenditure Normal 0 false

    Normal 0 false false

  • Q : Describe Form 22 Form 22 : It’s a

    Form 22: It’s a department’s request to transfer money to the Architectural Revolving Fund (example, for building enhancements), reviewed by the Department of Finance.