Answered: A) Distinguish between the short run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A) Distinguish between the short run and the long run as they relate to macroeconomics. Why is the distinction important?

B) Use graphical analysis to show how each of the following would affect the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are eventually flexible both upward and downward, and that there is no counteracting fiscal or monetary policy.

i) Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward.

ii) Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending.

iii) Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.

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