Unit 8 Answers

Refer to Figure 18-4. The shift of the labor demand curve from D1 to D2 could possibly be explained by

In Exhibit 2-19, the production possibilities curves for a country are shown for the years Year X and Year Y. Which of the following could have caused a shift for Year X to Year Y in production possibilities curves?

If we consider this supply and demand diagram prior to Government intervention (red line), the market leads to equilibrium price and quantity (P1, Q1) determined at the intersection of the supply (or MPC) and demand curve. Due to the

A change to government spending (Specify whether increase or decrease is needed to shift IS curve to the right.)

[pic] A decrease in production costs creates a downward shift in the short-run aggregate supply curve. Wages continue to fall until labor market equilibrium returns them to long term levels. This new equilibrium point is the point on the graph where D2 meets S2.

The Great Depression started in 1930 and lasted until 1939. It can be regarded as the worst depression the world has ever seen in the history. Spread across various nations, the Great Depression badly hampered each and every aspect of the economic, business, political, and social life. The most affected regions due to this economic slump were North America, Europe, and other industrialized Western countries. Among various other reasons, economists, researchers, and historians cite the 'Black Tuesday (October 29, 1929)' as the biggest cause of the Great Depression. It was the day on which the stock market crashed. A massive number of individuals, business corporations, and banking companies had invested huge amounts in stocks. In order to survive from heavy loss, everyone hurried to sell its stocks, but there were no buyers. The banks went bankrupt and further increased panic among individuals and businesses. In order to safeguard their remaining money, these individuals and businesses rushed to withdraw their deposits from their bank accounts. These heavy withdrawals further caused various commercial banks to shut down their operations due to bankruptcy.

As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.

is initially in both short and long run equilibrium [Hint: Your diagrams for each part should look

Consumer expenditures rising during this term will move the aggregate demand curve to the right as increased spending increases demand. This BLS report indicates that the next term should show statistical aggregate demand increases, and according to the Classical model perspective encourages a laissez-faire approach concerning correction of the long-term economic factors (Colander, 2010). The Classical model works perfectly as consumer expenditures are trending on the rise when factoring consumer expenditures. Until a more apparent downturn shows itself, the invisible hand should continue to work naturally.

Refer to the sets of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. Use the graphs to explain the process and steps by which each of the following economic scenarios will shift the economy from one long-run macroeconomic equilibrium to another equilibrium. Under each scenario, elaborate the short-run and long-run effects of the shifts in the aggregate demand and aggregate supply curves on the aggregate price level and aggregate output (real GDP).

Two macroeconomic variables that decline when the economy goes into a recession are real GDP and investment spending. GDP will decrease because the economy will be producing fewer goods and services overall. Investment spending, spending on new capital, will decrease in order to conserve and spend in other areas. The unemployment rate is one macroeconomic variable that will rise during a recession. If an economy begins producing fewer goods and services, businesses will need fewer employees to meet the production demand.

The aggregate demand curve shows the relationship between the general price level and the real national output. The rightward shift of the aggregate demand curve is largely due to a change in consumption spending, which results in an increase from AD1 to AD2. The long-run aggregate supply curve, which shows full employment of resources, will shift to the right and create an inflationary gap. In addition, it is seen that real GDP increases from Y1 to Y2 and that the price level increases from P1 to

growth and low growth of aggregate demand. Keynes urged that the economy can be below full

In principle, an economy is in equilibrium when the main macroeconomic variables tend to remain stable over time without external shocks. However, the conditions that this balance must fulfill differ according to the period in which we are analyzing the economy.

Macro Policy and CA AA Curve Aggregate Demand Determinants of Aggregate Demand Aggregate demand the aggregate amount of goods and services that individuals and institutions are willing and able to buy C: consumption expenditure I: investment expenditure G: government expenditure (purchases of final goods and services) CA: net expenditure by foreigners (the current account) Alan G. Isaac Slides for International Finance Introductory Concepts Short-Run Model: DD and AA Liquidity Trap Macro Policy and CA AA Curve Aggregate Demand Determinants of Consumption Demand ^ ^ disposable income (Yd = Y - T)