1. In the following table, determine how each event likely effects potential output (a.k.a., long-run
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Direction of Potential Output Shift |
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Event |
Left |
Right |
No Shift |
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The government allows more immigration of working-age adults. |
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For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down. |
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An investment tax credit increases the rate at which firms acquire machinery and equipment. |
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2. In the following table, determine how each event affects the position of the aggregate demand curve.
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Direction of AD Curve Shift |
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Event |
Left |
Right |
No Shift |
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A decrease in consumer confidence (suggests people believe a contraction/recession coming) |
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A decrease in individual income tax rates |
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An increase in the value/ |
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3. What effect would an increase in aggregate demand have on price levels and
4. What effect would an increase in aggregate supply have on price levels and GDP?
***Please explain question number 4
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