Question

Classify each of the following into which curve is going to shift in which direction? 2. Explain how will each of these affect the economy in the short run and the long run (in terms of output, unemployment and inflation)

a. Government decides to take policy to reduce deficit.

b. Construction workers goes on a strike for 2 months.

c. US dollar depreciates with respect to euro

d. People become more optimistic about the economy

e. Productivity of U. S workers increase due to technological advancement

Answer 1

Ans

A) when government will implement the policy to reduce the deficit it will shift the curve towards right as it shows growth of economy.

B) If the construction workers goes on a strike for 2 months then the process of development will be stopped and the contrubition to the economy will be stopped so the graph will shift towards left.

C) If the US dollars depreciates with euro it will shift the graph towards left because the US currency has become weak in terms of euro less of european goods will be purchased for same amount of dollars that were used to purchase earlier.

D) If the people become more optimistic about the economy it will lead to rightward shift of the graph.

E) If the product of US workers have been increased because of technological advancement they will be able to produce effectively and effeciently so it will shift the graph towards right.