For the following scenarios, determine which curve shifts (AD and/or SRAS and/or LRAS) and in which...

For the following scenarios, determine which curve shifts (AD and/or SRAS and/or LRAS) and in which direction.

(a) A hurricane causes destruction of physical capital along the east coast.

(b) Nominal wages fall

(c) Government spends $2.2 trillion dollars.

Expert Solution

(a) A hurricane causes destruction of physical capital along the east coast - SRAS curve shifts left.

When there is a hurricane, physical capital is destroyed, so this will lead to less production of goods temporarily till the physical capital is renewed or repaired and hence the Short Run Aggregate Supply (SRAS) Curve will shift left.

(b) Nominal wages fall - AD curve shifts left.

When demand for labor decreases but the supply of labor remains the same, the nominal wage will fall.This means that the Aggregate Demand (AD) for labor decreases, there is less money in people's hands than before and so the AD curve shifts to the left.

(c) Government spends $2.2 trillion dollars - AD curve shifts right.

When government spends $2.2 trillion dollars, the aggregate demand for goods and services increases because the government spent that money in various sectors and also the money exchanged hands and lead to the aggregate demand to increase.

Rahul Sunny answered 7 months ago

AD-SRAS-LRAS model of the economy. Assume the SRAS curve is upward sloping. a. Congress has debated...

AD-SRAS-LRAS model of the economy. Assume the SRAS curve is upward sloping. a. Congress has debated raising the minimum wage to over $10 per hour. Doing so would permanently increase the production costs to businesses, especially those relying on lower-skilled workers. Use the AD-AS model to discuss the macro impacts on the price level, real GDP and unemployment. b.The Federal Reserve has decided to design a policy response to the shift in part (a). What policy options are available and...

19)In a recessionary gap the SRAS and AD intersect to the ____ of the LRAS. The...

19)In a recessionary gap the SRAS and AD intersect to the ____ of the LRAS. The most recent recession as officially recorded by the NBER in the U.S. has been the______. Select one: a. left; the 1994 recession b. right; the 1991 recession c. left; the current COVID recession d. left; the 2001 recession

2. Do the following: a. Draw a graph consisting of AD, SRAS, and LRAS and mark...

2. Do the following: a. Draw a graph consisting of AD, SRAS, and LRAS and mark the long-run equilibrium. b. In the same graph, show what happens to the short-run equilibrium if there is a collapse in the stock market. c. What type of gap is there after the shock? d. What would eventually happen to output and inflation if there were no active policies used to counteract the shock? e. What type of active fiscal and active monetary policies...

The LRAS shows where the economy should be. The SRAS and the AD shows where the...

The LRAS shows where the economy should be. The SRAS and the AD shows where the economy is by creating the short-run equilibrium. Do you think that we are currently at the LRAS in our current economy? I do not understand how to figure this out. Please help! Thank you

Suppose country Zee is a closed economy. Consider AD, SRAS and LRAS for the economy of...

Suppose country Zee is a closed economy. Consider AD, SRAS and LRAS for the economy of Zee. Tye economy begins at price level P0, with output equal potential GDP=Y*, budget is balanced. 3.1 Suppose the government of Zee increases tax, T while keeping government expenditure G unchanged. Are we having budget deficit or surplus? What would be the effect of this action on loanable funds, real interest rate, private savings and investment, and levels of debt in country Zee? 3.2...

I. Explain whether each of the following events shifts the AS, LRAS, AD, both, or neither....

I. Explain whether each of the following events shifts the AS, LRAS, AD, both, or neither. For each event that does shift a curve, use a diagram to illustrate the effect on the economy. A. Households decide to save a larger share of their income. B. Florida orange groves suffer a prolonged period of below-freezing temperatures. C. Increased job opportunities overseas cause many people to leave the country. D. Due to higher wage growth, many domestic companies outsource their products...

Consider AD, SRAS and LRAS for the economy of country Xantron. 1.1 Suppose Xantron is having...

Consider AD, SRAS and LRAS for the economy of country Xantron. 1.1 Suppose Xantron is having real GDP lower than $1 million in a short-run situation, compared to Xantron's potential GDP. Give an example what might have caused this kind of situation in Xantron that could be mitigated by Monetary Policy. What kind of monetary policy could be useful for the economy of Xantron to restore potential GDP? Explain short-run and long-run dynamics ( changes/shifts/movements relating to AD, SRAS, LRAS,...

For the following changes in an economy, using an LRAS-AD-SRAS framework, tell whether short-run aggregate supply...

For the following changes in an economy, using an LRAS-AD-SRAS framework, tell whether short-run aggregate supply or long-run aggregate supply will be affected. Also, indicate the direction of the change in short and long run, effect on price, unemployment and real GDP. Assuming the economy is at the long run equilibrium explain in text and with a graph. (draw a new graph for each question) a. Department of Homeland Security implements new policy restricting immigration. b. A favorable supply shock...

Suppose an economy is initially at long run equilibrium. Using LRAS, SRAS and AD graphs, show...

Suppose an economy is initially at long run equilibrium. Using LRAS, SRAS and AD graphs, show this initial point and label it as A. (a) Due to terrorist attacks, the consumption expenditure decreased by $150 billion. With an MPC of 0.5, illustrate this decline in consumption on the graph in (a) and also compute the impact of the decline in consumption on output level (Y). (b) If the government wants to use taxes to restore long run equilibrium, should the government...

Use the AD-SRAS-LRAS model and diagram of chapter 10 to explain the economy’s likely transition to...

Use the AD-SRAS-LRAS model and diagram of chapter 10 to explain the economy’s likely transition to a major stock market decline that reduces the wealth of U.S. consumers. Show both long run and short run outcomes for the case where the AS is upward sloping and the case where AS is horizontal

Question