Show the short-run impact of the following factors on GDP using a graph of the aggregate goods and services market. Assume the economy was originally in long-run equilibrium
a. a stock market crash
b. a decrease in the real interest rate
c. a flood that destroys most agricultural crops
d. a decrease in resource prices
e. an increase in the labor force
f. an increase in the expected inflation rate
a. The stock market crash would decrease aggregate demand, leading to a decrease in both real GDP and prices in the short run.
b. A decrease in the real interest rate would increase aggregate demand, leading to an increase in both real GDP and prices in the short run.
c. The flood would decrease short-run aggregate supply, leading to an increase in prices and a decrease in real GDP in the short run.
d. A decrease in resource prices would increase short-run aggregate supply, leading to a decrease in prices and an increase in real GDP in the short run.
e. An increase in the labor force would increase both long-run and short-run aggregate supply, leading to an increase in real GDP and a decrease in prices in the short run. This point, however, will also be a long-run equilibrium.
f. An increase in the expected inflation rate will cause an increase in aggregate demand and a decrease in short-run aggregate supply. This will lead to an increase in prices and no change in real GDP in the short run.
You might also like to view...
An increase in the level of U.S. exports ________ the demand for goods and service produced in the United States
A) increases B) does not affect C) decreases D) increases or decreases
Which of the following is most important if a country is going to grow rapidly and achieve a high level of per capita income?
a. an abundance of natural resources b. a warm moist climate c. a small population relative to the geographic size of the country d. institutions and policies that encourage people to engage in productive activities