12. Use the classical model of a closed economy to predict how each of the following shocks should affect a nation's real aggregate income (Y), national saving (S), investment (1), and interest rate (r). Be sure in each case to clearly state your predicted direction of change (up, down, or no change) for all four variables and illustrate your predictions for S, I and r with a supply/demand diagram for the loanable funds market. a. The size of the labor force shrinks (L° decreases) b. Technological innovation increases total factor productivity (A increases)

12. Use the classical model of a closed economy to predict how each of the following shocks should affect a nation's real aggregate income (Y), national saving (S), investment (1), and interest rate (r). Be sure in each case to clearly state your predicted direction of change (up, down, or no change) for all four variables and illustrate your predictions for S, I and r with a supply/demand diagram for the loanable funds market. a. The size of the labor force shrinks (L° decreases) b. Technological innovation increases total factor productivity (A increases)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 14SCQ: If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls,...

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