1. Use aggregate supply and demand diagrams to explain what would happen to GDP and inflation in the following circumstances: ( Hint: Draw AD/AS diagrams, label initial curves Do and So, then draw new curve(s) reflecting the shifts indicated below and then interpret, what are new price levels and output levels relative to starting point. Be sure you know what factors shifts ADs and ASbefore attempting problems) a) Consumers decide to cut back their savings and buy more household appliances. b) Tornadoes destroy many factories in the country, while a severe drought ruins many crops. c) New technological developments raise productivity in manufacturing. d) Suppose Government concerned about mounting deficits drastically cuts government transfers and spending programs (Hint: AD has four components (Consumption, Private Investment, Government Spending, and Net Trade) 2. Is it more likely that aggregate supply or aggregate demand is shifting if: a) inflation and output move in the same direction? b) inflation and output move in opposite directions? c) inflation and unemployment move in the same direction?
Use aggregate
a)Consumers decide to cut back their savings and buy more household appliances.
b)Tornadoes destroy many factories in the country, while a severe drought ruins many crops.
c)New technological developments raise productivity in manufacturing.
d) Suppose Government concerned about mounting deficits drastically cuts government transfers and spending programs (Hint: AD has four components (Consumption, Private Investment, Government Spending, and Net Trade)
2. Is it more likely that aggregate supply or aggregate demand is shifting if:
a)inflation and output move in the same direction?
b)inflation and output move in opposite directions?
c)inflation and
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