Question
In: Economics
Explain how each of the following events affects the AS curve. a. The Fed increases the...
Explain how each of the following events affects the AS
curve.
a. The Fed increases the money supply.
| Aggregate supply shifts to the left | |
| Aggregate supply is unchanged | |
| Aggregate supply shifts to the right |
b. Oil prices drop sharply.
| Aggregate supply shifts to the right | |
| Aggregate demand shifts to the left | |
| Aggregate supply shifts to the left | |
| Aggregate demand shifts to the right |
Solutions
Expert Solution
a) Aggregate supply is unchanged. When Fed increases the money supply, more money is injected into the economy. Aggregate spending increases and hence, aggregate demand increases. AD curve shifts to the right. AS curve is unaffected by the changes in money supply.
b) AS curve shifts to the right.
When oil price falls, the cost of production falls as oil is a key input for production. Hence, the aggregate supply increase with the fall in cost of production. As curve shifts rightward.
Rahul Sunny answered 2 years agoRelated Solutions
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