***Please answer question number 3 **1. In the following table, determine how each event likely affects potential output (a.k.a., long-run aggregate supply).**| Event | Direction of Potential Output Shift ||---------------------------------------------------------------------------------------|--------------------------------------|| | Left | Right | No Shift || The government allows more immigration of working-age adults. | | | || 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. | | | |**2. In the following table, determine how each event affects the position of the aggregate demand curve.**| Event | Direction of AD Curve Shift ||-------------------------------------------------------------------------------------------|------------------------------|| | 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 | | | |**3. What effect would an increase in aggregate demand have on price levels and GDP?****4. What effect would an increase in aggregate supply have on price levels and GDP?**

3. The aggregate demand is the summation of the demand from all the economic agents such as the…

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

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

***Please answer question number 3

**1. In the following table, determine how each event likely affects potential output (a.k.a., long-run aggregate supply).**

| Event | Direction of Potential Output Shift |
|---------------------------------------------------------------------------------------|--------------------------------------|
| | Left | Right | No Shift |
| The government allows more immigration of working-age adults. | | | |
| 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. | | | |

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

| Event | Direction of AD Curve Shift |
|-------------------------------------------------------------------------------------------|------------------------------|
| | 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 | | | |

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

**4. What effect would an increase in aggregate supply have on price levels and GDP?**

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