Final answer:
The scenario provided concerns shifts in aggregate demand and supply curves, affecting the economy's price levels, output, and unemployment. Calculations based on the SRAS equation yield outputs for various price levels and provide insight into short and long-term economic balance after such changes.
Step-by-step explanation:
The question relates to the short-run aggregate supply (SRAS) curve's equation p = 30 + 0.5q, where p is the price level and q is the real output in dollar terms. Understanding this concept is crucial for answering the given scenarios about the economy's output and price level after certain changes in the price level, as well as shifts in aggregate demand and aggregate supply. Answering the specific questions:
1. For p = 140, rearranging the equation for q gives q as 220.
2. When the price level unexpectedly rises from 140 to 158, q will increase in the short run by 36 units, since the increase in p by 18 would mean a 0.5 per unit increase in q.
3. If the price level rises from 120 to 126, q increases by 12 in the short run.
4. In the long run, the increase in q due to a price level increase is determined by the long-run aggregate supply (LRAS), and the SRAS curve shifts could counteract the price level increase, maintaining the original level of output.
The concern for prices and unemployment in this economy can vary depending on the position of the SRAS and long-run aggregate supply (LRAS) curves and shifts in aggregate demand (AD). For instance, a leftward shift in AD can lead to a lower price level and output, with higher unemployment, while a rightward shift can increase both output and the price level, potentially leading to unsustainably low unemployment. A decrease in input prices causing the SRAS curve to shift right will lead to a new equilibrium with a higher output and potentially a lower price level.