Supply and Demand and Aggregate Supply Curve.
Entorno Económico de la Empresa
Tarea 5
1. The following events have occurred at times in the history of the United States: * A deep recession hits the world economy. * The world oil price rises sharply. * U.S. businesses expect future profits to fall.
a. Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them.
A deep recession in the world economy decreases aggregate demand. A sharp rise in oil prices decreases short-run aggregate supply. The expectation of lower future profits decreases investment and decreases aggregate demand.
b. Explain the separate effects of each event on U.S. real GDP and the price level, starting from a position of long-run equilibrium.
A deep recession in the world economy decreases aggregate demand, which decreases real GDP and lowers the price level. A sharp rise in oil prices decreases short-run aggregate supply, which decreases real GDP and raises the price level. The expectation of lower future profits decreases investment and decreases aggregate demand, which decreases real GDP and lowers the price level.
c. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium.
The combined effect of a deep recession in the world economy, a sharp rise in oil prices, and the expectation of lower future profits decreases both aggregate demand and short-run aggregate supply, which decreases real GDP and the price level rises, falls, or remains the same.
d. Describe what a classical macroeconomist, a Keynesian, and a monetarist would want to do in response to each of the above events.
Classical and monetarist economists probably would recommend no policy action for all three of the events. If they suggested any policy at all, the policy would involve cutting taxes. A Keynesian economist likely would suggest several policies for all three events, such as the U.S.
Tarea 5
1. The following events have occurred at times in the history of the United States: * A deep recession hits the world economy. * The world oil price rises sharply. * U.S. businesses expect future profits to fall.
a. Explain for each event whether it changes short-run aggregate supply, long-run aggregate supply, aggregate demand, or some combination of them.
A deep recession in the world economy decreases aggregate demand. A sharp rise in oil prices decreases short-run aggregate supply. The expectation of lower future profits decreases investment and decreases aggregate demand.
b. Explain the separate effects of each event on U.S. real GDP and the price level, starting from a position of long-run equilibrium.
A deep recession in the world economy decreases aggregate demand, which decreases real GDP and lowers the price level. A sharp rise in oil prices decreases short-run aggregate supply, which decreases real GDP and raises the price level. The expectation of lower future profits decreases investment and decreases aggregate demand, which decreases real GDP and lowers the price level.
c. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium.
The combined effect of a deep recession in the world economy, a sharp rise in oil prices, and the expectation of lower future profits decreases both aggregate demand and short-run aggregate supply, which decreases real GDP and the price level rises, falls, or remains the same.
d. Describe what a classical macroeconomist, a Keynesian, and a monetarist would want to do in response to each of the above events.
Classical and monetarist economists probably would recommend no policy action for all three of the events. If they suggested any policy at all, the policy would involve cutting taxes. A Keynesian economist likely would suggest several policies for all three events, such as the U.S.