Question

7. SRAS, LRAS, AD curves are used to analyze macroeconomic changes. Which of these three curves or lines will shift and in which direction (right or left) under the following conditions? Oil is used as input in the production of many goods. Say, oil prices increase: a. A tax credit for small businesses inspires firms to buy new company cars: b. A decrease in the prices of raw materials that are used in the production process: c. d. An increase in import and decrease in export: e. A decrease in business taxes: f. Considering that AD = C+I+G+NX. If income rises in foreign trading partners to the U.S.:..... g. An increase in personal income taxes: h. People buy more as a result of increased consumer confidence:

i only need answer for numer E to H.

Answer 1

E) Decrease in business taxes will increase corporate income. It will also motivate the businesses to increase their production. Therefore, both the aggregate demand and the short and aggregate supply are likely to shift to the right

F) aggregate demand is likely to shift to the right. This is because when there is an increase in the income of foreign trading partners, they will purchase more goods and services from the United States. Hence the net exports will increase.

G) this is likely to bring leftward shift in both the aggregate demand curve and the short run aggregate supply curve. Supply side factors as well as demand-side factors are working in this case. Reduced personal income as a result of increased taxes will reduce consumption and aggregate demand. It will also demotivate the worker to continue to work so production will decrease

H) this is likely to shift the aggregate demand curve to the right because of increased consumption spending.