Question

For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts in long- and short-run equilibrium, and describe the appropriate shifts in the AS or AD curves. Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers. a. A stock market crash reduces people’s wealth. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the left. Aggregate supply shifts to the right. Output falls. Output rises. The price level rises. The price level falls. b. The spread of democracy around the world increases consumer confidence in the United States. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the left. Aggregate supply shifts to the right. Output falls. Output rises. The price level rises. The price level falls. c. The European economy crashes. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output falls. Output rises. The price level falls. The price level rises. d. The United States enters into an arms race with China, resulting in a significant increase in military spending. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output falls. Output rises. The price level falls. The price level rises. e. A revolution in Iran results in a significant reduction in the world’s supply of oil. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output rises. Output falls. The price level rises. The price level falls. f. Terrorist activities temporarily halt the ability of Americans to engage in certain productive activities such as transportation and finance. Aggregate demand shifts to the right. Aggregate demand shifts to the left. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output falls. Output rises. The price level rises. The price level falls. g. Intel develops a new computer chip that is faster and cheaper than previous chips. Aggregate demand shifts to the right. Aggregate demand shifts to the left. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output falls. Output rises. The price level rises. The price level falls. h. A summer of perfect weather in the Midwest leads to record harvests of corn, wheat, and soybeans. Aggregate demand shifts to the left. Aggregate demand shifts to the right. Aggregate supply shifts to the right. Aggregate supply shifts to the left. Output falls. Output rises. The price level falls. The price level rises.