Question

For the following questions identy Which curve would be affected? is there a Movement Or Shift and is it left or right? PLEASE EXPLAIN WHY THE ANSWERS ARE CORRECT

1. Hourly wages & salaries rose by 1.9% and the non-wage component by 1.4% in the year up to the second quarter of 2012, ?

In 2012, the economy’s _________.?

2. …a weak reading of German investor sentiment - on concerns about a slowing in U.S. economic momentum and uncertainty around the emerging markets outlook….” ?

______ in Germany _____.?

3. Thanks to a surge in demand from China, there is an increase in car manufacturing in last quarter in U.S.”?

_________ in U.S. _____.

Answer 1

1. As hourly wages and salaries as well as non wage component rises, the aggregate demand rises which means that there is a rightward shift in the aggregate demand curve. There is a shift because the demand does not increase because of a price change but because of factors other than price change.

2. As there is a weak reading of investor sentiment, there is a leftward shift of the aggregate supply curve as suppliers would want to reduce the supply in anticipation of fall in demand. There is a shift because supply doesnt change as a response of price but because of factors other than price.

3. There is rightward shift of the aggregate supply curve in order to meet the demand from China. Hence there is a shift in the AS curve.