For each of the following situations, use an AD/AS model to describe what happens to price...

For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts at potential GDP, and describe the appropriate shifts in the AS or AD curves.

a. A stock market crash reduces people’s wealth.

Yes/No Aggregate demand shifts to the left

Yes/No Aggregate demand shifts to the right

Yes/No Aggregate supply shifts to the left

Yes/No Aggregate supply shifts to the right

Yes/No Output falls

Yes/No Output rises

Yes/No The price level rises

Yes/No The price level falls

Yes/No The price level does not change

Solutions

Expert Solution

a) A stock market Crash reduces people's wealth will lead to shifting the aggregate demand curve to the left. The price will be lower and the quantity output will be less at that price.

The answer is :

The AD curve shift to the left.
Output Falls,
The price falls.

Apart from these three, all are false or No.

Rahul Sunny answered 1 year ago

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