1. For each of the following events, explain the short-run and long-run effects on output and...
1. For each of the following events, explain the short-run and long-run effects on output and price level, assuming policymakers take no action.
a. The stock market declines sharply, reducing consumers’ wealth.
b. The federal government increases spending on national defense.
c. A technological improvement raises productivity.
d. A recession overseas causes foreigners to buy fewer U.S. goods.
e. Household decide to save a larger share of their income.
f. Increased job opportunities overseas cause many people to leave the country.
g. The government raises taxes
Homework Answers
Ans
Can answer only 4 parts according to HOMEWORKLIB POLICY
1 AD falls in shortrun because purchasing power falls. Price and output level fall. In longrun since AS shifts rightwards because due to underutilisation of resources resources price falls. Price level falls but output level returns to natural level
2 AD shifts rightwards. Output and price rise. In longrun input price rise and AS shifts leftwards. Output returns to natural level but prices rise
3 It increases output and reduces prices both in shortrun and longrun since LRAS also shifts rightwards
4 AD falls in shortrun reducing output and price..in longrun AS shifts rightwards. Output rises to natural level but prices fall
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