Give an example of a demand shock and a supply shock and show how it may push output and employment away from their natural levels. Include a graph.
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- Give an example of a demand shock and a supply shock and show how it may push output and employment away from their natural levels.Classify each of the following as a supply shock or ademand shock. Use a graph to show the effects on inflation and output in the short run and in the long run.a. Financial frictions increase.b. Households and firms become more optimistic aboutthe economy.c. Favorable weather produces a record crop of wheatand corn in the Midwest.d. Auto workers go on strike for four months.Classify each of the following as a supply shock or a demand shock. Use a graph to show the effects on inflation and output in the short run and in the long run: a. Households and firms become more optimistic about the economy. b. Favorable weather causes an increase in crude palm oil production in Malaysia. c. Typhoon Rai hit Philippines and caused a massive destruction of houses and 400 death tolls.
- Classify each of the following as a supply shock or a demand shock. Use a graph to show the effects on inflation and output in the short run and in the long run. Financial frictions increase. Steel workers go on strike for four weeks. Households and firms become more optimistic about the economy. Favorable weather produces a record crop of soybeans and cotton in the Midwest.What happened to the demand for rental cars during the first half of 2021? I.e., was there a positive or negative demand shock? What caused the shock?(Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.
- On a graph, show the impact of the permanent supply shock on unemployment and inflation in the long run and in the short run.If a natural disaster occurs in the US, this is an example of a A) stone cold shock B) negative aggregate demand shock C) negative real shock D) positive real shock E) None of the answers are correct.Which 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.
- Graphically show the impact of a tax cut shock. Include all three markets: Labor, Product, Capital. Start with an initial steady state. Show the impact of a shock in the initial market. Next show the propagation mechanism--how it carries over into the other two markets. Show at least one set of the feedback loop, Show the new steady state.Which of the following would properly be classified as a favorable supply shock? a)A hurricane hits a major city, destroying factories, roads, airports, and homes. Because the city was a major port and transportation hub, goods and services need to be rerouted, increasing transportation costs for firms nationwide. b)The interest rate decreases, spurring investment spending. c)There is a technological improvement that allows firms to reduce their costs of production permanently. d)There is an increase in government spending. e)The world price of oil increases rapidly without warning and is expected to remain at the new high level for many years, making it more expensive for all firms to produce goods and services.How does the economy evolve over time after the initial impact of the shock?