EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Chapter 11, Problem 1FCT
To determine
Whether the increased effect of sales on aggregate demand shocks or
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Give an example of a favourable and unfavourable shock to the aggregate supply. Use the model of aggregate demand (AD) and aggregate supply (AS) to explain the effects of such shocks. How do these shocks affect the AD-AS curves?
Identify three positive demand shocks that would increase aggregate demand and three negative demand shocks that would decrease aggregate demand.
Assume that the economy is operating at or near its long‐run aggregate
Identify one negative consequence that would result from a positive demand shock and two negative consequences that would result from a negative supply shock.
Could you please also sort the following shocks into positive or negative aggregate supply or aggregate demand shocks?
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New inventions occur at a faster pace
A faster money growth rate
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- Describe some potential causes of a negative aggregate demand shock and a negative aggregate supply shock. Both types of shocks may lead to a recession. Explain how the short run outcomes of these two types of shocks will differ.arrow_forwardAssume that the economy is operating at or near its long‐run aggregate Identify one negative consequence that would result from a positive demand shock and two negative consequences that would result from a negative supply shock.arrow_forwardWhich of the following would be positive aggregate demand shock? A) a slower money growth B) increased import growth C) faster growth of government spending D) decreased investment spending E) None of the above.arrow_forward
- Consider the effects of Corona virus pandemic on the macro economy in Kenya. Suppose we assume that the massive lockdown of the economy that followed the outbreak represents a large negative aggregate demand shock, use the aggregate demand-long-run aggregate supply-short-run aggregate supply (AD-LRAS-SRAS) model to show what happens to output, prices and unemployment. Thank youarrow_forwardWhat effects would each of the following have on aggregate demand or aggregate supply? Justify your answer. In each case use a diagram to show the expected effects on the equilibrium price level and real output level in the economy. Assume that all other things remain constant and prices are inflexible downward. (a) A reduction in interest rates at each price level (b) A sizable increase in labor productivity. (c) The nation’s currency appreciates against its major trading partners .arrow_forwardWhich of the following events will not cause a supply shock that would shift the aggregate supply curve? a.Tax for energy use introduced to help reduce global emissions b.natural disasters which destroys agricultural products c.adjustments in the interest rates for housing d.The OPEC cartel for oil prices collapses due to political disagreementsarrow_forward
- Consider an economy that is initially in long-run equilibrium. Assume that the long- run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y= 2(M/P) and M = 1500. Suppose that a supply shock affects the economy in such a way that the price level doubles. Then, the short-run level of output becomes: 0000 1500 3000 1235 1425arrow_forwardWhat are supply shocks? Why are policy choices hard when there are negative supply shocks? Would you model the pandemic of 2020 as a supply shock or a demand shock? Why?arrow_forwardUsing the “dynamic aggregate demand” and “dynamic aggregate supply” (DAD/DAS) model: draw a graph and discuss the effect of an adverse supply shock, such as a rise in oil prices. (Your answer should be 150 words ±10%)arrow_forward
- Using the “dynamic aggregate demand” and “dynamic aggregate supply” (DAD/DAS) model: (b) draw a graph and discuss the effect of an adverse supply shock, such as a rise in oil prices.arrow_forwardDescribe an economic environment which would be characterized by the term "stagflation". Using an AD - AS diagram, depict and given an example of a macroeconomic shock that would take an economy from a long - run equilibrium to a situation of stagflation. Label all points on the graph completely and point out the key characteristics associated with stagflation on your graph.arrow_forwardY=F(K,L) K=R L=T Y=C+I+G C = Co + C1( Y – T) – C2r I = I0 - I1r G=G T=T It is known that in addition to a drop in consumer confidence, investor confidence also fell. Explain mathematically, graphically, and intuitively what effects these two shocks will have (simultaneously) in the long run on consumption, savings, investment, interest rates, fiscal deficit, and output.arrow_forward
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