Each of the events below causes a shift in either the Aggregate Demand curve or the Short-Run...

Question:

Each of the events below causes a shift in either the Aggregate Demand curve or the Short-Run Aggregate Supply curve. Match each event in the first column with the appropriate result in the second column.

Interest rates rises A. The Short Run Aggregate Supply curve shifts to the left.
Consumers become more optimistic about the future B. The Aggregate Demand curve shifts to the right.
Commodity prices rise. C. The Aggregate Demand curve shifts to the left.
Labor Productivity improves. D. The Short Run Aggregate Supply curve shifts to the right.
In an open economy, exports rise while mostly imports stay the same.
Nominal wages rise.
From 2006 to 2008 there was a dramatic fall in the price of houses (NOT a fall in the average price level, though) that made people feel less wealthy.
Businesses in general believe that the economy is likely to head into recession and so they reduce their purchases of machinery and equipment.

Aggregate Demand and Aggregate Supply:

Aggregate demand curve consists of consumption expenditure, investment expenditure, government expenditure and net export.

When one of these factors go up, the AD curve shifts rightward.

On the other hand, short run supply curve shows the positive relationship between price and real GDP. ...

Answer and Explanation:

1. When interest rate rises C. the aggregate demand curve shift to left
2. Consumers become more optimistic about future, B. The AD curve would shift to right
3. Commodity price rises, D. the short run AS curve shifts right
4. Labor productivity improves, D. the short run AS shift right
5. Export rise while mostly imports stay the same, B. Aggregate demand curve shifts to the right
6. Nominal wage rise A. The short run aggregate supply curve shifts to the left
7. People became less wealthy, C. the aggregate demand curve shift to left
8. Reduction of purchase of machinery and equipment, C. the aggregate demand curve shift to left

...


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Aggregate Supply and Aggregate Demand (AS-AD) Model

from Economics 102: Macroeconomics

Chapter 7 / Lesson 3
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