Refer to scenario 1 and question 67. Starting from the new short-run equilibrium at point A, suppose that two additional shocks occur: (i) after the Lehman Brothers' bankruptcy, the financial crisis worsened, reducing private spending even further; and (ii) a fall in the price of oil due to the lower private spending. If the shock in (ii) restored the SRAS curve back to its original level, what happened with prices in the new equilibrium? (call this point B) O The shock in (i) increased aggregated demand and the price level, in the middle of the recession, increased. O The shock in (i) reduced aggregate demand and the price level, in the middle of the recession, fell. O The shock in (i) reduced the LRAS curve and the price level, in the middle of the recession, fell. O The shock in (i) increased the LRAS curve and the price level, in the middle of the recession, increased.
Refer to scenario 1 and question 67. Starting from the new short-run equilibrium at point A, suppose that two additional shocks occur: (i) after the Lehman Brothers' bankruptcy, the financial crisis worsened, reducing private spending even further; and (ii) a fall in the price of oil due to the lower private spending. If the shock in (ii) restored the SRAS curve back to its original level, what happened with prices in the new equilibrium? (call this point B) O The shock in (i) increased aggregated demand and the price level, in the middle of the recession, increased. O The shock in (i) reduced aggregate demand and the price level, in the middle of the recession, fell. O The shock in (i) reduced the LRAS curve and the price level, in the middle of the recession, fell. O The shock in (i) increased the LRAS curve and the price level, in the middle of the recession, increased.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
68
Transcribed Image Text:Scenario 1
In 2007-09, the U.S. economy went through its worst economic downturn in 30 years. As a
consequence of the sharp increase in the price of housing in the U.S. in the mid-2000s, a rapid
increase in the demand for oil drove up oil prices. Additionally, the collapse of the housing
market, which led to Lehman Brothers' bankruptcy, generated a financial crisis that reduced
private spending.
Refer to scenario 1 and question 67. Starting from the new short-run equilibrium at point A,
suppose that two additional shocks occur: (i) after the Lehman Brothers' bankruptcy, the
financial crisis worsened, reducing private spending even further; and (ii) a fall in the price of oil
due to the lower private spending. If the shock in (ii) restored the SRAS curve back to its original
level, what happened with prices in the new equilibrium? (call this point B)
O The shock in (i) increased aggregated demand and the price level, in the middle of the recession,
increased.
O The shock in (i) reduced aggregate demand and the price level, in the middle of the recession, fell.
O The shock in (i) reduced the LRAS curve and the price level, in the middle of the recession, fell.
The shock in (i) increased the LRAS curve and the price level, in the middle of the recession, increased.
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