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You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is operating at full employment, but a new crisis has hit the nation of Zedland, a major trade partner. Zedland's unemployment has hit record highs and stock market has crashed unexpectedly. Your team must analyze how this external shock may impact the economy in Manulo. Prepare a brief report that answers the following questions: 1. Which curve, aggregate demand (AD), short run aggregate supply (SRAS) or long run aggregate supply (LRAS) would immediately shift in response to the crisis in Zedland? In which direction (left or right? Explain your rationale. In other words, why does the curve shift? 2. Compare the expected movements in equilibrium GDP and price level in the short run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift? 3. Compare the expected movements in equilibrium GDP and price level in the long run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift in the long run? 4. The president wants you to explain how does the economy of Manulo transition from the short run equilibrium to the long run equilibrium so he can decide whether to put together an economic policy response. In other words, what is the difference between the long run and the short run and how does an economy move from one equilibrium to the other?

You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is operating at full employment, but a new crisis has hit the nation of Zedland, a major trade partner. Zedland's unemployment has hit record highs and stock market has crashed unexpectedly. Your team must analyze how this external shock may impact the economy in Manulo. Prepare a brief report that answers the following questions: 1. Which curve, aggregate demand (AD), short run aggregate supply (SRAS) or long run aggregate supply (LRAS) would immediately shift in response to the crisis in Zedland? In which direction (left or right? Explain your rationale. In other words, why does the curve shift? 2. Compare the expected movements in equilibrium GDP and price level in the short run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift? 3. Compare the expected movements in equilibrium GDP and price level in the long run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift in the long run? 4. The president wants you to explain how does the economy of Manulo transition from the short run equilibrium to the long run equilibrium so he can decide whether to put together an economic policy response. In other words, what is the difference between the long run and the short run and how does an economy move from one equilibrium to the other?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is operating at full employment, but a new crisis has hit the nation of Zedland, a major trade partner. Zedland's unemployment has hit record highs and stock market has crashed unexpectedly. Your team must analyze how this external shock may impact the economy in Manulo. Prepare a brief report that answers the following questions: 1. Which curve, aggregate demand (AD), short run aggregate supply (SRAS) or long run aggregate supply (LRAS) would immediately shift in response to the crisis in Zedland? In which direction (left or right? Explain your rationale. In other words, why does the curve shift? 2. Compare the expected movements in equilibrium GDP and price level in the short run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift? 3. Compare the expected movements in equilibrium GDP and price level in the long run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift in the long run? 4. The president wants you to explain how does the economy of Manulo transition from the short run equilibrium to the long run equilibrium so he can decide whether to put together an economic policy response. In other words, what is the difference between the long run and the short run and how does an economy move from one equilibrium to the other?
Transcribed Image Text:You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is operating at full employment, but a new crisis has hit the nation of Zedland, a major trade partner. Zedland's unemployment has hit record highs and stock market has crashed unexpectedly. Your team must analyze how this external shock may impact the economy in Manulo. Prepare a brief report that answers the following questions: 1. Which curve, aggregate demand (AD), short run aggregate supply (SRAS) or long run aggregate supply (LRAS) would immediately shift in response to the crisis in Zedland? In which direction (left or right? Explain your rationale. In other words, why does the curve shift? 2. Compare the expected movements in equilibrium GDP and price level in the short run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift? 3. Compare the expected movements in equilibrium GDP and price level in the long run. In other words, compared to the starting point (before the shift) what happened to output and price level (increased, decreased or stayed the same) and after the shift in the long run? 4. The president wants you to explain how does the economy of Manulo transition from the short run equilibrium to the long run equilibrium so he can decide whether to put together an economic policy response. In other words, what is the difference between the long run and the short run and how does an economy move from one equilibrium to the other?
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