In the following table, determine how each event affects the position of the long-run aggregate supply...

In the following table, determine how each event affects the position of the long-run aggregate supply curve.

	Direction of LRAS Curve Shift
Event	Left	Right	No Shift
The government allows more immigration of working-age adults.		Right
For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down.
An investment tax credit increases the rate at which firms acquire machinery and equipment.

In the following table, determine how each event affects the position of the aggregate demand curve.

	Direction of AD Curve Shift
Event	Left	Right	No Shift
A decrease in consumer confidence (suggests people believe a contraction/recession coming)
A decrease in individual income tax rates
An increase in the value/price of housing

What effect would an increase in aggregate demand have on price levels and GDP?

What effect would an increase in short run aggregate supply have on price levels and GDP?

Expert Solution

Direction of LRAS curve shifts :

Event	Left	Right	No shift
The government allows more immigration of working-age adults		LRAS curve shifts right.
For environmental and safety reasons ,the government requires that the country's nuclear power plants be permanently shut down.	LRAS curve shifts left.
An investment tax credit increases the rate at which firms acquire machinery and equipment.		LRAS curve shifts right.

Direction AD curve shift:

Event	Left	Right	No shift
A decrease in consumer confidence (suggests people believe in contraction/ recession coming)	AD curve shift left.
A decrease in individual income tax rates		AD curve shifts right.
An increase in value/price of housing	AD curve shifts left.

An increase in aggregate demand would lead to an increase in the price level and increase in the GDP.

An increase in the short run aggregate supply would lead to decrease in the price level and increase in the GDP.

Rahul Sunny answered 1 year ago

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