ECON222 Microeconomics 2 Assignment 7 | Liverpool

ECON222 Assignment 7:

In Chapter 13, we learned that we can use the macroeconomic model to analyze the changes to real GDP (Y), unemployment (u) and price level (PL) as a result of some event.

1.Draw the macroeconomic model at equilibrium. Label the axis and curves correctly – PL, GDP, AD, SRAS, LRAS. Also, correctly label the equilibrium PL, Y* and u*. (20 Points) 

2.Assume a drought severely lessens the corn harvest. Since corn has many uses including livestock feed and ethanol for gas, this drought causes

1. short-term decrease in aggregate supply (SRAS). This is a negative supply shock.
2. Graph the shift in the curve and the new PL, Y an U in the short-run (14 Points)
3. Would a drought that negatively impacted the corn harvest increase or decrease output (Y) in the short-run? (12 points)
4. Would it increase or decrease unemployment (u) in the short-run? (12 points)
5. Would it increase or decrease the overall price level in the economy in the short-run?
   (12 points)
6. What would happen to Y, u and PL in the long-run? (10 points)