Question

1. For each of the following events, determine whether the aggregate demand curve or the short-run aggregate supply curve will shift. Show the shift on a graph and explain what happens to equilibrium price level and equilibrium GDP because of the shift.

A.) A stock market boom makes people wealthier.

B.) A recession overseas causes foreigners to buy fewer US goods.

C.) Oil prices rise.

D.) The government implements several new programs thereby increasing its spending.

E.) A technological improvement raises productivity.

F.) The government puts into law a new tax plan that increases corporate income taxes

G.) The Fed decreases the discount rate and interest rates fall.

H.) The government passes a law increasing tax deductions for the average American.

I.) The government increases defense spending and approves a stimulus package to aid businesses.

J.) The government dramatically increases taxes and crowds out the ability of many consumers and producers to spend.

K.) A significant increase in labor productivity.

L.) Widespread fear of recession on the part of consumers.

M.) An increase of 5% in the real wages firms pay to workers.

Answer 1