Question

The AD/AS model is useful in predicting the effects of various shocks and policy changes on an economy. The model is based on goods and services being exchanged in well-functioning markets. In general, however, markets are not always perfect. Consider how the model would change as a result of market imperfections. (Hint: Can the AS/LRAS shift when there are governmental controls?)

How would the AD/AS model change if input prices, such as wages and raw material prices, were set by the government rather than in markets?

If the government sets input prices, what long-run effect?

Answer 1

@amistre64

Answer 2

aggregate demand and supply eh ....

Answer 3

the models get flat spots when they hot a floor or ceiling ....

Answer 4

*hit

Answer 5

Would the ad/as model shift to the right or left?

Answer 6

aggregates are the lines themselves ... moving them requires an increase or decrease in the actual demand or supply environment right?

Answer 7

The ad curve will shift caused by changes in levels of consumption, government expenditures, exports, or imports that are not caused by a change in the price level

Answer 8

supply changes with increases in technology, raw materials, and other stuff which makes producing more STUFF economically feasible, or when less stuff is available do to depletion.

demand changes occur when there is an increase of population, increase in wealth, or changes in the way people... yeah consumptions and such

Answer 9

change in price level such as wages, do not shift the curve itself, it only effects how the curve looks ..... if that makes sense

Answer 10

so being set by the government instead of the markets wouldn't shift the model? What would I write in my answer it describe this

Answer 11

ive been too long out of economics classes to be certain, but this would be a good refresher if you need material to guide ou.

http://highered.mcgraw-hill.com/sites/dl/free/0070969531/817998/McConnell_Macro12ce_Ch10.pdf

Answer 12

government spending shifts the curves, government regulations tho ... i think they produce a more keyensian model

Answer 13

Oh, so the ad/as model would change from the classical model to the keyensian model because the wages and prices were fixed. I could write that I guess

Answer 14

it sounds fancy enough :) but i cant be certain if itll be approved by whatever is grading it

Answer 15

Ok haha what about part b?

Answer 16

im wondering if surplus and shortages would play into the long run model