Macroeconomics 19th Edition by Campbell McConnell , Stanley Brue,Sean Flynn

Exercise 1

Use the accompanying figure to answer the follow questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy's potential (or full-employment) level of output. Next, suppose that the price level rises froM₁20 to 130. By how much will real output increase in the short run? In the long-run? Instead, now assume that the price level dropped froM₁20 to 110. Assuming flexible product and resource prices, by how much will real output fall in the short run? In the long run? What is the long-run level of output at each of the three price levels shown?