1. Classify each of the following into which curve is going to shift in which direction?...

1. Classify each of the following into which curve is going to shift in which direction?

a. Government decides to take policy to reduce deficit.

b. Construction workers goes on a strike for 2 months.

c. US dollar depreciates with respect to euro

d. People become more optimistic about the economy

e. Productivity of U. S workers increase due to technological advancement

Solutions

Expert Solution

In the first case government is deciding to reduce its deficit which will result in a lowering it's spending or increasing the taxes. This will shift the aggregate demand curve to the left.

In the second case when the construction workers are not working the quantity of construction will reduce and therefore investment will be lower. This indicates that aggregate demand curve will again shift to the left.

In the third case the dollar is depreciating which indicates that domestic products manufactured by the US firms will be cheaper and so experts will increase which will shift the aggregate demand curve to the right.

When people are more optimistic about the economy they will try to spend more and with increased consumption is spending the aggregate demand curve will shift to the right.

Productivity of the workers is increased which indicates that with the currently employed labour force the productivity is higher so aggregate supply curve will shift the right.

Rahul Sunny answered 1 year ago

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