During the winter of 2014/2015 oil prices dropped by a large percentage compared to the summer of 2014
During the winter of 2014/2015 oil prices dropped by a large percentage compared to the summer of 2014. By March 2015, what changed?
| There was a shift to the right in the aggregate demand curve. |
| There was a shift to the left in the aggregate demand curve. |
There was a shift to the right in the aggregate supply curve. |
If the government saw that consumer confidence was high, what step can it take to shift the AD to the left?
| The Federal Reserve can increase interest rates. |
| Congress can pass tax cuts. |
| Government can increase its spending. |
If the government saw that consumer confidence was low, what step can it take to shift the AD to the right?
| Government can decrease its spending. |
| The Federal Reserve can increase interest rates. |
| Congress can pass tax cuts. |
Homework Answers
1.
During the winter of 2014/2015 oil prices dropped by a large percentage compared to the summer of 2014. By March 2015, what changed?
There was a shift to the right in the aggregate demand curve.
Reason: As oil prices drop in Winter of 2014, this will increase relative purchasing power of consumer income, thereby leading to an increase in the demand for oil in 2015. As a result, AD curve will shift to the right.
If the government saw that consumer confidence was high, what step can it take to shift the AD to the left?
The Federal Reserve can increase interest rates.
Reason: In order to shift AD to the left, the government will have to institute a contractionary policy. By increasing interest rates, the Fed will implement a contractionary monetary policy, where in an increase in interest rates will increase the cost of borrowing money. This will leave consumers with lower disposable income in hand, leading to a fall in demand for goods and services, shifting the AD curve to the left.
If the government saw that consumer confidence was low, what step can it take to shift the AD to the right?
Congress can pass tax cuts.
Reason: A reduction in tax rates will increase consumer disposable income, leading to a rightward shift of the AD curve
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