Question

In: Economics

For each of the following events affecting equilibrium inflation rate and unemployment rate, indicate the specific...

For each of the following events affecting equilibrium inflation rate and unemployment rate, indicate the specific short-run result that will occur. Note some of these events may affect both aggregate supply and aggregate demand. Your answers should be based on the single strongest change.

Result A: Inflation increases, Unemployment increases

Result B: Inflation decreases, Unemployment decreases

Result C: Inflation decreases, Unemployment increases

Result D: Inflation increases, Unemployment decreases

Result Event
Government raises personal income taxes.
The price of imported final goods falls.
The interest rate rises.
There is an increase in the price of foreign oil.

Environmental pollution standards are tightened substantially.

A reduction of foreign consumption of U.S. products occurs.
An increase in government purchases occurs.
Households prefer to save more
Inflationary expectations increase.
The prices of imported intermediate goods falls

Solutions

Expert Solution

Increase in personal income tax, will decrease the AD and and AD will shift to the left. It will make event C to happen.

Decrease in the price of final foreign goods, will make some domestic firms go out of the business. It will decrease the AD and AD will shift to the left. It will make event C to happen.

It decreases the spending and AD shifts to the left. It will make event C to happen.

It will shift the AS curve to shift to the left due to rise in price of oil. It will cause result A to happen.

It will shift AS to the left. Price increases and unemployment increases as well. It will cause result A to happen.

It will decrease the AD. It will make result C to happen.

It will increase AD and it will make result D to happen.

Rahul Sunny answered 3 months ago
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