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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action.

a. The stock market declines sharply, reducing consumers’ wealth.

b. The federal government increases spending on national defense.

c. A technological improvement raises productivity.

d. A recession overseas causes foreigners to buy fewer U.S. goods.

Sub part (a):

To determine

Short run and long run effects of economic events on output and price.

Explanation

The supply depends upon the price level in the economy. When the price level is higher, the suppliers will be receiving higher income, and this would incentivize them to increase the supply in the economy and vice versa. The aggregation of the supply curves of all the firms in the economy is known as the aggregate supply curve. In the short run period, the aggregate supply curve represents the relationship between the price level in the economy and the supply by the firms.

The demand comes from all the economic agents such as the households, firms, as well as the government. The demand depends on the price level of the economy. The increase and decrease in the price level determine the level of demand in the economy. The aggregation of all the individual demands in the economy is known as the aggregate demand; thus, the aggregate demand explains the relationship between the general price level and the level of real GDP demanded in the economy by the economic agents such as the households, firms, and the government...

Sub part (b):

To determine

Short run and long run effects of economic events on output and price.

Sub part (c):

To determine

Short run and long run effects of economic events on output and price.

Sub part (d):

To determine

Short run and long run effects of economic events on output and price.

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