Question

. is war good or bad for the economy? 2. what are the opportunity costs of using resources in wars? 3. how would a war affect aggregate supply? 4. graph the shift in aggregate supply. what happens to output and the price level? 5. how would a war affect aggregate demand? 6. graph the shift in aggregate demand. what happens to output and the price level? 7. is peace good or bad for the economy?

Answer 1

1) War is bad for the economy because it waste our resources, waste money, deviates manpower, loss of lives which can be used to do much more fruitful things for economy.

2) Opportunity cost is the cost of second alternative when first is chosen. Opportunity cost of war would be fall in total output produced, economic growth in an economy because country will bear the cost of war for many years from the war actually takes place.

3) It will reduce aggregate supply of goods because using more of the resources for war will leave less for producers which will raise price of raw material and eventually cost of production. Rise in cost of cost of production will induce producers to reduce aggregate supply of goods due to fall in their overall profit level.

4)

It will raise price level from P to P1 and reduce output level from Y to Y1.

5) It will raise aggregate demand of goods because of rise in government spending which will shift aggregate demand curve to its right from AD to AD1.

6) It will result in price as well as output level.

7) Peace is good for the economy because there is no fluctuations in price level in short run which helps people in predicting their long run consumption pattern. It keeps cost of raw material at low which helps producers in generating more profit.