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 1 year ago

Next > < Previous

Related Solutions

1. Explain how each of the following events affects the AD curve

1. Explain how each of the following events affects the AD curve a. An increase in consumer confidence leads to higher consumption spending. Aggregate demand shifts to the right Aggregate demand is unchanged Aggregate demand shifts to the let b. The government reduces income taxes. Aggregate demand shifts to the left Aggregate demand is unchanged Aggregate demand shifts to the right2. Explain how each of the following events affects the AS curve. a. The Fed increases the money supply. Aggregate supply is unchanged Aggregate supply shifts to the right Aggregate supply shifts...

Explain how each of the following affects the aggregate supply and/or aggregate demand curve and equilibrium...

Explain how each of the following affects the aggregate supply and/or aggregate demand curve and equilibrium GDP and prices in the short and long run. Does your answer depend on where the economy is in terms of full employment when the change happens? Consumer spending increases Investment spending increases Government spending is reduced US exports fall Tax rates are lowered Raw material (e.g., energy) prices rise Wages increase

Explain what effect each of the following events will have on the IS curve in a...

Explain what effect each of the following events will have on the IS curve in a flexible exchange rate regime: (1) an increase in foreign output; (2) a reduction in the foreign interest rate; and (3) an increase in the domestic interest rate.

Explain how each of the following events would affect the short-run aggregate supply curve. a. An...

Explain how each of the following events would affect the short-run aggregate supply curve. a. An increase in productivity b. A decrease in cost of energy c. A decrease in income tax d. Many firms relocate to China looking for lower wage rate e. A decrease in the number of discouraged workers

1. Explain how each of the following events would affect the aggregate demand curve. a. Lower...

1. Explain how each of the following events would affect the aggregate demand curve. a. Lower interest rates (5 points) b. A decrease in net exports (5 points) c. A decrease in the price level (5 points) d. Slower income growth in other countries (5 points) e. A decrease in imports (5 points) 2. Explain how each of the following events would affect the long-run aggregate supply curve. a. A lower price level (5 points) b. A decrease in the...

3. Explain what effect each of the following events will have on the IS curve in...

3. Explain what effect each of the following events will have on the IS curve in a flexible exchange rate regime: (1) an increase in foreign output; (2) a reduction in the foreign interest rate; and (3) an increase in the domestic interest rate

Using the loanable funds theory, show in a graph how each of the following events affects...

Using the loanable funds theory, show in a graph how each of the following events affects the supply and demand for loans and the equilibrium real interest rate: a). A war leads the government to increase spending on the military. (Assume taxes do not change.). Please note, to get full points, you need to illustrate (on the proper, well-labeled graph) and explain. b). Wars in other countries lead to higher government spending in those countries. Please note, to get full...

Either draw a diagram or describe how each of the following events affects both the equilibrium...

Either draw a diagram or describe how each of the following events affects both the equilibrium price and quantity of plastic bottled water. You need to indicate the following: 1. What shifts: Supply or Demand. 2. What direction it shifts: left or right. 3. The resulting change in equilibrium price and quantity. a. The price of soft drinks falls. b. The health hazards of drinking sugary sodas are widely publicized. c. There are wide spread reports of high levels of...

Using the loanable funds theory, show in a graph how each of the following events affects...

Using the loanable funds theory, show in a graph how each of the following events affects the supply and demand for loans and the equilibrium real interest rate: a). (0.5 points): A war leads the government to increase spending on the military. (Assume taxes do not change.). Please note, to get full points, you need to illustrate (on the proper, well-labeled graph) and explain. b). (0.5 points): Wars in other countries lead to higher government spending in those countries. Please...

Outline the ways in which FED easing affects the yield curve. Is it possible for an...

Outline the ways in which FED easing affects the yield curve. Is it possible for an increase in the real money supply (FED easing) to actually have exactly the opposite effect? Explain the basis of why this is or isn’t possible.

Subjects