Question

In: Economics

State whether each of the following events appears to be the result of a shift in...

State whether each of the following events appears to be the result of a shift in short?run aggregate supply or aggregate demand, and state the direction of the shift involved. a) The price level rises sharply while real GDP falls. b) The price level and real GDP rise. c) The price level falls while real GDP rises. d) The price level and real GDP fall. To the Tutor: Please be clear and explanatory. Will be appreciated. Thank you.

Expert Solution

a)

A shift in the aggregate supply curve to the left.

Explanation: A decrease in the aggregate supply with aggregate demand being the same, causes an excess demand. Thus the equilibrium level of real GDP falls. This thus puts a upward pressure on the prices.

b)

A shift in the aggregate demand curve to the right.

Explanation: An increase in the aggregate demand with aggregate supply being the same, causes an excess demand. Thus the firms expand output in response to rising demand the GDP rises. Thus the equilibrium level of real GDP rises. This thus puts a upward pressure on the prices.

c)

A shift in the aggregate supply to the right.

Explanation: The increases aggregate supply shift the AS curve to the right. Thus the new AS curve cuts the old AD at higher output level. An increase in the aggregate supply with aggregate demand being the same causes an excess supply. The excess supply also puts a downward pressure on the prices.

d)

A shift in the Aggregate demand curve to the left.

Explanation: An crease in the aggregate demand with aggregate supply being the same, causes an excess supply. Thus the firms have unintended inventory accumulation, they thus cut back production and hence real GDP falls. The excess supply also puts a downward pressure on the prices.

Rahul Sunny answered 2 years ago

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