mr. weiss section 4 – module 21– effect on ad, sras and lras curves 5. for each of the...
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Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
a. An increase in the money supply causes interest rates to a. An increase in the money supply causes interest rates to fall.fall.
a. An increase in the money supply is an example of a. An increase in the money supply is an example of monetary policy: The AD curve shifts to the right and there is monetary policy: The AD curve shifts to the right and there is a movement upward along the SRAS curve. There will be no a movement upward along the SRAS curve. There will be no change in the LRAS curvechange in the LRAS curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
b. The price of commodities increases by 10% this yearb. The price of commodities increases by 10% this year.
b. When the price of commodities increases, this causes the b. When the price of commodities increases, this causes the SRAS curve to shift to the left. There will be a movement SRAS curve to shift to the left. There will be a movement upward along the AD curve and no change in the LRAS upward along the AD curve and no change in the LRAS curve.curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
c. The price of oil falls.c. The price of oil falls.
c. When the price of oil decreases, this causes the SRAS c. When the price of oil decreases, this causes the SRAS curve to shift to the right and results in a downward curve to shift to the right and results in a downward movement along the AD curve. There is no change in the movement along the AD curve. There is no change in the LRAS curve.LRAS curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
d. Labor unions successfully negotiate an increase in d. Labor unions successfully negotiate an increase in nominal wages for their workersnominal wages for their workers.
d. Successful labor union negotiations lead to higher wages, d. Successful labor union negotiations lead to higher wages, which leads to a leftward shift in the SRAS curve and an which leads to a leftward shift in the SRAS curve and an upward movement along the AD curve. There is no change in upward movement along the AD curve. There is no change in the LRAS curve.the LRAS curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
e. The supply of unsold houses in an economy increases by e. The supply of unsold houses in an economy increases by 20%.20%.e. When the inventory of unsold houses increases in an e. When the inventory of unsold houses increases in an economy, this implies that the level of investment is high and economy, this implies that the level of investment is high and there is therefore less incentives for firms to invest in this there is therefore less incentives for firms to invest in this economy. As investment spending falls, this causes the AD economy. As investment spending falls, this causes the AD curve to shift to the left, resulting in a downward movement, curve to shift to the left, resulting in a downward movement, along the SRAS curve. There is no change in the LRAS along the SRAS curve. There is no change in the LRAS curve.curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
f. There in an increase in labor productivity due to increases f. There in an increase in labor productivity due to increases in human capital.in human capital.f. When labor productivity increases, this causes the SRAS f. When labor productivity increases, this causes the SRAS curve to shift to the right, but it also causes the LRAS curve curve to shift to the right, but it also causes the LRAS curve to shift to the right because the economy can now produce at to shift to the right because the economy can now produce at a higher potential level. There is downward movement along a higher potential level. There is downward movement along the AD curve.the AD curve.
Mr. Weiss
Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves
5. For each of the following, describe the effect on the AD, 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves. Identify whether the effect causes a SRAS, and LRAS curves. Identify whether the effect causes a shift of or a movement along the curve, and identify the shift of or a movement along the curve, and identify the direction of the shift/movement.direction of the shift/movement.
g. The government increases spending in order to finance a g. The government increases spending in order to finance a war.war.
g. When the government increases spending to finance a war, g. When the government increases spending to finance a war, this causes the AD curve to shift to the, right, resulting in a this causes the AD curve to shift to the, right, resulting in a movement upward along the SRAS curve. There is no movement upward along the SRAS curve. There is no change in the LRAS curve.change in the LRAS curve.