14. Suppose the economy begins with an output equal to its natural level. Then there is an increase in consumer confidence and households attempt to consume more for a given level of disposable income. a. Using the AS-AD and IS-LM models, show the effects of an increase in consumer confidence on the position of the AD, AS, IS, and LM curves in the short run and the medium run. Precisely label all axes and curves to receive full credit. Label the short-run equilibrium and medium-run equilibrium with SR and MR, respectively. b. Explain the transition process from the short-run equilibrium to the medium-run equilibrium. In particular, discuss what makes the equilibrium changes over time. c. What happens to private saving in the short run? Can private saving increase in the short run even when there is an increase in consumer confidence? If yes, discuss the necessary condition for the higher private saving in the short run. d. What happens to private saving in the medium run compared to its short-run and original levels? Explain carefully.

14. Suppose the economy begins with an output equal to its natural level. Then there is an increase in consumer confidence and households attempt to consume more for a given level of disposable income. a. Using the AS-AD and IS-LM models, show the effects of an increase in consumer confidence on the position of the AD, AS, IS, and LM curves in the short run and the medium run. Precisely label all axes and curves to receive full credit. Label the short-run equilibrium and medium-run equilibrium with SR and MR, respectively. b. Explain the transition process from the short-run equilibrium to the medium-run equilibrium. In particular, discuss what makes the equilibrium changes over time. c. What happens to private saving in the short run? Can private saving increase in the short run even when there is an increase in consumer confidence? If yes, discuss the necessary condition for the higher private saving in the short run. d. What happens to private saving in the medium run compared to its short-run and original levels? Explain carefully.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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