The following questions relate to long-run macroeconomic equilibrium and the stock market boom. Assume that a hypothetical economy is at long-run macroeconomic equilibrium, with full employment and stable prices. Suddenly the stock market prices increase much more than expected, increasing investor’s wealth, and causing a short-term period of unusually increased optimism about the future of the economy. In the short-run, will the AS curve or the AD curve shift, and in which direction will it shift? In the short-run, what will happen to the price level and quantity of output (real GDP)? Explain what, if any, impact will there likely be on workers’ wages, and the reasons for this impact. In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift? When the economy returns to its long-term output level, how will the new long-run macroeconomic equilibrium differ from the original equilibrium?
The following questions relate to long-run macroeconomic equilibrium and the stock market boom. Assume that a hypothetical economy is at long-run macroeconomic equilibrium, with full employment and stable prices. Suddenly the stock market prices increase much more than expected, increasing investor’s wealth, and causing a short-term period of unusually increased optimism about the future of the economy. In the short-run, will the AS curve or the AD curve shift, and in which direction will it shift? In the short-run, what will happen to the price level and quantity of output (real GDP)? Explain what, if any, impact will there likely be on workers’ wages, and the reasons for this impact. In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift? When the economy returns to its long-term output level, how will the new long-run macroeconomic equilibrium differ from the original equilibrium?
Chapter10: Aggregate Demand And Supply
Section10.A: The Self Correcting Aggregate Demand And Supply Model
Problem 10SQ
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The following questions relate to long-run
Assume that a hypothetical economy is at long-run macroeconomic equilibrium, with full employment and stable prices. Suddenly the stock market prices increase much more than expected, increasing investor’s wealth, and causing a short-term period of unusually increased optimism about the future of the economy.
- In the short-run, will the
AS curve or the AD curve shift, and in which direction will it shift? - In the short-run, what will happen to the
price level and quantity of output (realGDP )? - Explain what, if any, impact will there likely be on workers’ wages, and the reasons for this impact.
- In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift?
- When the economy returns to its long-term output level, how will the new long-run macroeconomic equilibrium differ from the original equilibrium?
Need answer to 4 & 5 only.
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