Question

NEED detailed explanations for short-run and long-run equilibrium.

For each of the following scenarios, describe the effect on the AD curve, the SRAS curve, and the LRAS curve. Identify whether the effect causes a shift of the curve or a movement along the curve and identify the direction of the shift or the movement. Answer these questions on your assignment paper.

a. An increase in the money supply causes interest rates to fall.

b. The price of commodities (production inputs) increases by 10% this year.

c. The price of oil falls.

d. Labour unions successfully negotiate an increase in nominal wages for their workers.

Answer 1

Answer

In the long run, firms are able to adjust all costs, whereas, in the short run, firms are only able to influence prices through adjustments made to production levels. In economics, long-run models may shift away from short-run equilibrium, in which supply and demand react to price levels with more flexibility

a) when the supply of money increases, financial institutions drop interest rates to motivate people to borrow. The opposite situation occurs when there is no money in the market. When money supply in the market decreases, lenders are forced to increase interest rates

b)