Question

If there is a sudden spike in demand across different sectors of the economy, as consumers anticipate future shortages, what will happen to prices and real GDP in the short run, if nothing else occurs? ( <---That last phrase is important! This makes it not exactly like what we've seen with COVID)

Question 10 options:

	Real GDP increases
	Prices increase
	Prices decrease
	Real GDP decreases

For each scenario, identify the primary shift that occurs.

Earlier this year, shortly before COVID became a palpable threat in the US, Saudi Arabia "flooded the market" for oil, driving down the price of oil. Ignoring the effects of COVID, what would happen in the AD/AS model when the price of oil decreases?

Question 1 options:

	Aggregate demand shifts to the right
	Long run aggregate supply shifts to the left
	Aggregate demand shifts to the left
	Long run aggregate supply shifts to the right
	Short run aggregate supply shifts to the left
	Short run aggregate supply shifts to the right

Answer 1

1 - Real GDP increase

Price increase

This is because the rise in consumption , AD will rise and shift to right. This will lead to the rise in the real GDP and price level in the economy.

2 - Aggregate demand shift to right

Short run aggregate supply shift to right

The fall in oil prices lead to rise in real income of consumer leading to increased consumption. Also cheaper oil reduces the cost of production leading to rise in short run supply.