Basic Concepts in Economy

2245 WordsFeb 26, 20189 Pages
1. The cut in interest rates will shift the aggregate demand curve to the right. The reduction in the interest rate will reduce the cost of borrowing for households and businesses. These lower rates should encourage households and businesses to increase their level of consumption and increase the level of investment spending in the economy. The increase in government spending on infrastructure will shift the aggregate demand curve to the right, because the level of output increases as well as the price level. The long run supply curve will also sift to the right and the short run supply curve will shift to the left, because the government spending on infrastructure would increase the levels of productivity and employment levels in the economy. (c)An increase in international economic turbulence The increase in international economic turbulence will shift the aggregate demand curve to the left, as consumption and investment decline due to the lack of consumer and business confidence. The short run supply curve would shift to the right because the price level is lower than expected and costs have fallen in the economy. The appreciation in the foreign exchange rate of the economy’s currency will make imports more cheaper for the economy and exports would be more expensive to send to foreign economies, therefore some businesses who import goods to use in their production, the costs would fall, causing the short run supply curve to shift to the right as prices for
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