Use the AD/AS framework to explain how the economy adjusts in the short run and the long run to each of the following (assuming that the economy starts at potential GDP with no spare Capacity and a given price level): a) World energy prices rise and then settle at a new higher level, and this raises input prices for all domestic producers. b) There is a one-off fall in export demand which stays at the new lower level. c) The monetary policy makers lower their official interest rate and hold it at the new lower level.
Use the AD/AS framework to explain how the economy adjusts in the short run and the long run to each of the following (assuming that the economy starts at potential
spare Capacity and a given price level):
a) World energy prices rise and then settle at a new higher level, and this raises input prices for all domestic producers.
b) There is a one-off fall in export demand which stays at the new lower level.
c) The
d)The government raises its current spending and keeps it at the new level.
e)Say what might have happened to the other components of aggregate demand when the economy has adjusted to the change In d) in the long run.
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