Define for each scenario whether AD (Aggregate Demand) or AS (Aggregate Supply) will shift, and indicate...

Define for each scenario whether AD (Aggregate Demand) or AS (Aggregate Supply) will shift, and indicate if it will be an outward shift (rightward) or inward shift (leftward).

a. A fall in the price of oil

b. A rise in consumer optimism

c. A hurricane destroys factories in South Carolina

d. Foreigners watch fewer U.S.-made movies

e. New inventions occur at a faster pace

f. A faster money growth

Solutions

Expert Solution

a. A fall in the price of oil reduces cost of production. This raises production and causes a rightward shift of the aggregate supply curve.

b. A rise in consumer optimism raises consumption which is a significant part of aggregate demand. This causes a rightward shift of the aggregate demand curve.

c. A hurricane destroys factories in South Carolina. This will increase the cost of production. This reduces production and causes a leftward shift of the aggregate supply curve.

d. Foreigners watch fewer U.S.-made movies. This implies lower export services and so lower net exports. This causes a leftward shift of the aggregate demand curve.

e. New inventions occur at a faster pace. This increases productivity and raises production of goods and services. This causes a rightward shift of the aggregate supply curve.

f. A faster money growth increases money supply and reduces rate of interest. This raises investment which is a significant part of aggregate demand. This causes a rightward shift of the aggregate demand curve.

Rahul Sunny answered 1 week ago

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