Need some help answering and understanding these questions! thanks in advance! 1

Question

Need some help answering and understanding these questions! thanks in advance!

17. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, in- ternational tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Which curve shifts and in which direction? (a) aggregate demand shifts right (b) aggregate demand shifts left (c) aggregate supply shifts right (d) aggregate supply shifts left 18. Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. If nominal wages are sticky, which of the following helps explains the change in output? (a) real wages fall, so firms choose to produce less (b) real wages fall, so firms choose to produce more (c) real wages rise, so firms choose to produce less (d) real wages rise, so firms choose to produce more 19. If output is above its natural rate, then according to sticky-wage theory (a) workers and firms will strike bargains for higher wages. This increase in wages (b) workers and firms wl strike bargains for higher wages. This increase in wages (c) workers and firms will strike bargains for lower wages. This decrease in wages (d) workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply cur shifts the short-run aggregate supply curve left shifts the short-run aggregate supply curve right shifts the short-run aggregate supply curve left ve

Explanation / Answer

17.) Answer is option b .

Consumer confidence  is indicator that measures the degree of optimism that they ( consumers) feel about the overall state of the economy and their personal financial situation.

Since consumer confidence is badly affected, so they will reduce their purchases, so AD shifts left

18.)sticky nominal wages, thus nominal wages will not be cut downwards, as now deflation is set into economy, so real wages will rise, as real wages= nominal wages/ price

& Thus firms produce less

Option c)

19.) Option b)

Higher output than natural level thus , workers demand for High wages & so they now supply less labor so AS curve shifts left

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