Discuss which curves shift (Aggregate demand or aggregate supply in the short run) and determine the...

Discuss which curves shift (Aggregate demand or aggregate supply in the short run) and determine the impact on the equilibrium price and real GDP by the following changes? (Draw initial aggregate demand and supply curves and then draw the new AD or AS curve to find the impact.

1. Increase in price of inputs caused by COVID 19

2. Decrease in interest rate caused by government policy

3. Business taxes fall

4. Increase in personal income tax

5. Government building more roads and highways.

6. Advancement in technology

7. Increase in unemployment insurance amount

8. Increase in wealth tax

Solutions

Expert Solution

Ans) 1) Increase in the price of raw materials will lead to decrease in aggregate supply because production cost will increase. AS curve will shift to the left and price level will increase while output will decrease.

2) Decrease in interest rates will increase aggregate demand and AD curve will shift to the right. As a result, both price level and output will increase.

3) Decrease in business tax will encourage businesses to invest more. Aggregate demand will increase and AD curve will shift to the right. Both price level and output will increase.

4) An increase in personal income tax will reduce disposable income and hence aggregate demand will decrease. AD curve will shift to the left and both price level and output will decrease.

5) An increase in government expenditure increases aggregate demand. AD curve will shift to the right and both price level and output will increase.

6) An advancement in technology will increase aggregate supply and AS curve will shift to the right. Price level will decrease and output will increase.

7) Unemployment insurance is government spending. An increase in government expenditure will increase aggregate demand. AD curve shifts to the right and both price level and output will increase.

8) Increase in wealth tax will reduce aggregate demand and AD curve shifts to the left and both price level and output will decrease.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which...

Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following government policies will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output? There is an increase in taxes on households. There is an increase in the quantity of money. There is an increase in government spending.

Using aggregate demand, short-run (SR) aggregate supply, and long-run (LR) aggregate supply curves, explain the process...

Using aggregate demand, short-run (SR) aggregate supply, and long-run (LR) aggregate supply curves, explain the process by which each of the following economic events will move the economy from an original LR (and SR) equilibrium (eq) to a new SR eq, and to a new LR (and SR) eq. Illustrate with diagrams. There is a decrease in households’ wealth due to a decline in the stock market. The government lowers taxes, leaving households with more disposable income.

a) Discuss, with examples, factors or events that might shift the short run aggregate supply curve....

a) Discuss, with examples, factors or events that might shift the short run aggregate supply curve. [10 marks] b) Imagine an economy is in long run equilibrium. Now suppose that firms experience an increase in their cost of production (say, due to a natural disaster). i. Explain, with graphs, the macroeconomic impact of such an increase in production costs. ii. Describe how policymakers could use fiscal policy to counteract the effects of increased cost of production. [15 marks]

Unlike aggregate demand, we distinguish between short-run and long-run aggregate supply. Short-run aggregate supply (SRAS) is...

Unlike aggregate demand, we distinguish between short-run and long-run aggregate supply. Short-run aggregate supply (SRAS) is a horizontal curve whereas long-run aggregate supply (LRAS) is vertical. a.) In our model of aggregate supply and demand, we distinguish between short-run and long-run aggregate supply. In the short run, what variable can firms adjust and what variable is fixed? In the long run? b.) Plot the short-run aggregate supply curve, the long-run aggregate supply curve, and the aggregate demand curve below. Label...

Describe factors that would shift short run aggregate supply.

1. Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply...

1. Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply (LRAS) curves, briefly explain how an open market purchase will affect the equilibrium price level (P) and real output (Y) in the short run. Assume the economy is initially in a recession. 2. Using the quantity equation (the equation of exchange) briefly explain the quantity theory of money. Specifically, how the quantity theory of money explains why inflation occurs.

Illustrate a graph with aggregate demand, short-run aggregate supply and long-run aggregate supply all intersecting. Then,...

Illustrate a graph with aggregate demand, short-run aggregate supply and long-run aggregate supply all intersecting. Then, show what happens in the short-run when the government increases taxes. What happens to the price level and output in the short-run? Finally, adjust the short-run aggregate supply curve so that we are back in long-run equilibrium. What is the long-run effect of the increased taxation on output and the price level? Be sure to include your illustrations.

Consider an economy described by the following short-run aggregate demand, aggregate supply and long-run aggregate supply...

Consider an economy described by the following short-run aggregate demand, aggregate supply and long-run aggregate supply curve: (short-run aggregate demand curve) P = 200 – Y (short-run aggregate supply curve) P = 40 + Y (long-run aggregate supply curve) Y *= 120 where P = Price Level (price index with base period’s index = 100) and Y = Quantity of Output Draw a diagram below to show equilibrium with P on Y-axis and Y on X-axis by finding equilibrium price...

Discuss, with examples, factors or events that might shift the short run aggregate supply curve. Imagine...

Discuss, with examples, factors or events that might shift the short run aggregate supply curve. Imagine an economy is in long run equilibrium. Now suppose that firms experience an increase in their cost of production (ex: due to a natural disaster). Explain, with graphs, the macroeconomic impact of such an increase in production costs and Describe how policymakers could use fiscal policy to counteract the effects of increased cost of production.

What is the effect of the great recession in the short-run and long-run aggregate supply curves...

What is the effect of the great recession in the short-run and long-run aggregate supply curves and the aggregate demand curve? How the government can return the output level to the initial?

Subjects