Question

Start each # scenario at equilibrium and full employment (Qf), determine what curve shifts and the impact.

#

Economic Change

Which curve shifts? AD or AS

Does the curve Increase or Decrease?

Does this shift cause a problem of unemployment, inflation, neither or both?

1

Real Interest Rates Decrease

2

Substantial immigration occurs increasing labor supply

3

Citizens Pay off Debt

4

Better Trained workforce increases productivity

5

Excess Capacity increases

6

Increase by the government in Business payroll taxes

7

US dollar appreciates relative to foreigners

8

Increase in Asset value

9

Imported Oil input prices fall

10

Firms are optimistic about future returns

11

Business receives a tax subsidy from the government

12

Expectations of higher citizen incomes

13

Government decreases regulation standards

14

An increase in the number of highway projects

15

Personal Taxes Decrease

16

US dollar depreciates, making imported goods more expensive for producers

17

Older workers retire, decreasing labor supply

18

Less Military spending

19

National Incomes abroad Increase

Answer 1

1.When real interest rate falls,the income of the people rises because they can borrow more at a lesser interest rate.Due to rise in income the aggregate demand curve would shift to the right.Output and employment rises.Price rise and inflation rises.

2.When labour supply rises,the aggregate supply curve shifts to the right.When supply of labour rises,labour becomes available at lower wages.This means that the cost of production falls.So,AS would shift to the right.Output and employment rises.

3.When citizens pay off their debts,their real income falls.Lower real income leads to lower AD.AD shifts to the left.Employment falls.

4.A rise in productivity reduces marginal cost of production which raises aggregate supply.AS shifts to the right.Output and employment rises.

5.Supply rises and output rises.

6.Demand falls due to fall in real income of consumers.Unemployment rises as output falls.

7.Supply falls as U.S. goods becomes expensive in the foreign due to appreciation,the demand for U.S. goods fall causing supply to fall.

8.Demand rises because increase in asset valur would imply higher income for consumers.

9.Supply rises because the cost of production will fall.

10.Supply rises due to optimism .

11.Supply rise as cost of production falls.

12.Demand rises as income is expected to rise.

13.Supply rises due to lesser regulation.

14.Demand rises because government has increased spending.

15.Demand rises due to rise in real income.

When demand(AD) rises income and output rise so unemployment falls but price rises so inflation rises and vice versa

When supply(AS) rises,output rises causing unemployment to fall and vice versa.