A ) Suppose you are working as an economic consultant and you are supposed to explain...

A ) Suppose you are working as an economic consultant and you are supposed to explain the consequences of the following cases to your clients. Answer each part separately.
1. Suppose due to a war in a neighbouring country, the country received refugees which increased the labour force. Also, there is a huge reduction in global oil prices. By using the Aggregate Supply curve, show the possible effects of these two changes on the price level and aggregate output in the Short-Run. Explain each step in your graph.
2. Suppose there is an increase in interest rate. By using the Aggregate Expenditure (AE) – Aggregate Output (Y) graph, show the effects of this change on AE and Y in the Short-Run. Then, show the effect of increased interest rate by using the IS curve, explain what will happen to the IS curve.
3. Now suppose government expenditure (G) increases and there is an increase in the overall price level (P). By using the IS curve and Fed (Central Bank) Rule curve graph, explain the effect of these changes on the interest rate and output in the Short- Run. Explain each step in your graph.
4. Now assume that there is an increase in government expenditure (G), an increase in the labour force and a reduction in oil prices. By using the AS-AD graph, explain the effects of these changes on equilibrium output and equilibrium price level in the Short-Run. Explain each step in your graph.
5. Now assume that for some reason Aggregate Demand shifts to the left (downwards) and suppose wages fully adjust. By using the AS-AD graph, show the effects of this shift on the equilibrium output and price level in the Short-Run and in the Long-run.

Expert Solution

Rahul Sunny answered 2 years ago

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