Describe what effect each of the following would likely have on the short-run pr
ID: 1115791 • Letter: D
Question
Describe what effect each of the following would likely have on the short-run price level and real output (increaseldecrease) in the U.S. Explain your logic. (assume long-run equilibrium exists prior to these events) Your answers should be in the form, for example,-#1 Price level rises; output rises because of unplanned decreases in business inventories. 1. aggregate demand -increases; short-run aggregate supply-no change 2. aggregate demand - no change; short-run aggregate supply-increases 3. aggregate demand - decreases; short-run aggregate supply - no change 4. aggregate demand no change; short-run aggregate supply-decreases 5. Value of dollar depreciates worldwide 6. Interest rates increase 7. Tax code is changed to create more deductions which reduces household taxable income 8, Military spending is decreased by 25% (no increases in other areas) nt Jeff Caldwel 9. Consumer/Business confidence improves dramatically upon the election of Preside 10. The price of gasoline decreases drastically. B Send to Binder Download Print Activity Details You have viewed this topicExplanation / Answer
Q.6 ) Interest rate Increase.
The price level increases - as the cost of capital increases making the production costly
Real Output decreases - the investments decreases due to high interest rate.
Q.7 ) Tax code is changed to create more deductions which reduces household taxable income.
The price level - increases - the spendable amount with household increases leading to more demand for products making the price level rise.
OUTPUT - increases - as the increase in demand for the goods and services.
Q.8) Military spending is decreased by 25% ( no increase in other tax)
The short run price level - no change - will not have impact in short run price level
Real OUTPUT - decreases - as the spending decreased by 25% the out put will also decrease.
Q.9) Consumer/ BUsiness confidence improves dramatically upon the election of president Jeff Caldwell
The short run price level - no change - will have less impact in short run however in long run the prices are bound to rise.
Real Output - increases - as the business confidence increases investment and there by output in the economy.
Q.10 ) The price of Gasoline decreases drastically .
The short run Price levels - Decreases - as the transportation cost of goods and services reduce reducing the prices. The energy costs are reduced thus producing goods at cheaper rate.
OUTPUT - increases - as the cost of production decreases due to low energy cost, the businesses produce more.