EVENTS DIAGRAMS AD SRAS LRAS P RGDP PI LRAS SRAS The government adopts economic

Question

EVENTS DIAGRAMS AD SRAS LRAS P RGDP PI LRAS SRAS The government adopts economic policies that lower business optimism about the future direc- tion of the economy a. AD RGDP b. A technological break- PI LRAS SRAS through in robotics significantly raises labor productivity AD RGDP c. Social Security reform P LRAS SRAS leads to lower real inter- est rates. AD RGDP d. Newly released econom-p LRAS SRAS ic indicators lead people to believe that the rate of inflation will increase in the near future. AD RGDP e. A war disrupts oil sup- P LRAS plies leading to tempo rarily higher oil prices AD RGDP

Explanation / Answer

a. AD shifts leftwards as investment falls,SRAS shifts leftwards, LRAS stays same, P rises, RGDP falls.

b. AD unchanged,SRAS shifts rightwards as productivity rises,LRAS stays same,P falls, RGDP rises.

c. AD rises as investment rises, SRAS unchanged,LRAS unchanged,P rises, RGDP rises.

d. AD rises as consumption rises,SRAS unchanged,LRAS unchanged,P rises,RGDP rises.

e. AD unchanged, SRAS falls as costs rise, LRAS unchanged, P rises, RGDP falls.

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