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Aggregate supply in the immediate short run (range 1 of AS) Scenario: There is a decrease...

Aggregate supply in the immediate short run (range 1 of AS)

Scenario: There is a decrease in the wealth of our largest trading partner, Canada

question 1) a. AD increases b. AD decreases c. AS increases d. AS decreases

question 2) a. GDP growth rises b. GDP growth fall c. GDP growth remains unchanged

question 3) a. unemployment rises b. unemployment falls c. unemployment remains unchanged

question 4) a. inflation increases b. inflation decreases c. inflation remains unchanges

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Homework Answers

Answer #1

In the immediate short run, AS curve is horizontal at aggregate price level.

In there is decrease in wealth in trading partner country, their import demand falls, lowering out export demand. This lowers Net exports, therefore aggregate demand falls, shifting AD curve leftward.

(Question 1) Option (b)

(Question 2) Option (b)

A leftward shift in AD will decrease GDP.

(Question 3) Option (a)

A leftward shift in AD will increase unemployment.

(Question 4) Option (b)

A leftward shift in AD will decrease price level (inflation).

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