Question

1. 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).

1. A fall in the price of oil
2. A rise in consumer optimism
3. A hurricane destroys factories in South Carolina
4. Foreigners watch fewer U.S.-made movies
5. New inventions occur at a faster pace
6. A faster money growth
   

Answer 1

A) Rise in price of oil will reduce the demand of it. It will cause movement along the demand curve.

Rise in price of oil induce producers to sell maximum of oil to earn maximum profits. It will shift supply curve to its right.

B) Rise in consumer optimism builds confidence in the economy and consumers tends to spend more money of durable goods. It will raise aggregate demand and shift demand curve outward.

C) Hurricane destroys factories in South Carolina will reduce the supply of goods produced in factory. It will shift the supply curve of that good to its left.

D) Foreigners watch fewer U.S. made movies will reduce the demand of U.S. made movies in international market and tends to reduce overall demand of U.S. made movies. It will shift demand curve to its left.

E) New inventions occurs at very fast pace, it will help producers in producing more of the goods with ease of the process or using less of the inputs. It will raise supply of goods and shift supply curve outward.

F) A faster money growth will raise circulation of money in the economy and tends to raise willingness to pay for goods by people. It will raise aggregate demand and shift demand curve to its right.