Modern Principles: Macroeconomics
Modern Principles: Macroeconomics
4th Edition
ISBN: 9781319098773
Author: Tyler Cowen, Alex Tabarrok
Publisher: Worth Publishers
Question
Book Icon
Chapter 13, Problem 1FT
To determine

Distinguish between aggregate demand shocks and real shocks.

Expert Solution & Answer
Check Mark

Answer to Problem 1FT

Table 1 shows the classification of different economic events as aggregate demand shocks and real shocks.

Table 1

Aggregate demand shocks Real shocks
A rise in consumer optimism A fall in price of oil
A rise in sales taxes A hurricane that destroys factories in Florida
Foreigners watching fewer US-made movies Good weather that creates a tremendous increase in the growth of oranges in California.
Fear New inventions occur at a faster pace than usual
A faster money growth rate

Explanation of Solution

The aggregate demand shock is an immediate change in the demand for goods or services. The rise in consumer optimism increases the confidence about the price of a commodity and changes the demand for that commodity. In case of rise in sale, the tax also suddenly changes the demand for that taxed commodity. If the foreigners watch fewer US-made movies, then it will reduce the demand of US-made movies. If the consumers dread an increase in the price of a product in future, this will change the demand for that commodity at present. The faster money growth rate increases the income of people in the economy, thereby affecting the demand for goods and services. On the basis of these characteristics, these economic events are included in the category of aggregate demand shock.

The real shock is an unexpected economic situation that affects the factors of production used in the production process. The fall in the price of oil affects its factors of production. The hurricane increases the price of factors of production. Good weather creates a tremendous increase in the growth of oranges in California. This extra-large production increases the demand for its factors of production. In the case of new inventions, they alsorise the demand factors of production.

Economics Concept Introduction

Concept introduction:

Aggregate demand shocks: An aggregate demand shock is a sudden surprise event that temporarily increases or decreases the demand for goods or services.

Real shocks: A real shock is an unexpected or unpredictable event that affects the fundamental factors of production.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Johnny brought $39.50 to the art supply store. He bought a brush, a sketchbook, and a paint set. The brush was  1 6  as much as the sketchbook, and the sketchbook cost  3 4  the cost of the paint set. Johnny had $2.00 left over after buying these items.
A young woman plans to retire early in 25 years. She believes she can save $10,000 each year starting now. If she plans to begin withdrawing money one year after she makes her last payment into the retirement account (i.e., in the 26th year), what uniform amount could she withdraw each year for 30 years, if the account earns an interest rate of 8% per year? a) Correctly plot the cash flow diagram with its respective vectors, arrowheads, units, and currency values. b) Correct mathematical approach and development, use of compound interest factors.c) Financial logic in the development of the exercise and application of the concept of time value of money. d) Final numerical answer and writing in prose with a minimum of 20 words and a maximum of 50 words of the obtained numerical interpretation.
A hospital charges $200 for a medical procedure, and 1,000 patients use the service. The hospital raises the price to $250, and the number of patients drops to 900. Calculate the price elasticity of demand (PED) and explain your answer. (show all working) Briefly explain how elasticity affects government health policies in the following cases: • Taxes on unhealthy products (cigarettes, alcohol, sugary drinks) • Subsidizing Preventive Care (e.g., vaccines, screenings) Drug Price Controls & Generic Substitutions Co-Payments & Insurance Design
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education