economic scenarios will shift the economy from one long-run macroeconomic equilibrium to another equilibrium . Under each scenario , elaborate the short-run and long-run effects of the shifts in the aggregate demand and aggregate supply curves on the aggregate price level and aggregate output ( real GDP ).
Suppose the household wealth decreases due to a decline in the stock market asset prices ( See the set of graphs below and pay attention to the 3-stage shifts in graphs ).
Assume the government lowers taxes , which increases the household ’ s disposable income . However , the government purchases ( spending ) remains the same . ( See the set of graphs below and shifts in graphs )
2 . Suppose the economy of a hypothetical country has reached its long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs . What kind of gap , inflationary or recessionary gap , will the economy face after the AD shock indicated by the shift in AD curves ? What types of fiscal policy instruments will help move the economy back to the potential level of output ( real GDP )? Give specific examples .
At the long-run macroeconomic equilibrium , the stock market boom occurs and this increases the value of stocks households hold . ( See the set of graphs below and shifts in graphs in the two-steps )
The government increases its purchases ( spending ) due to natural disasters . ( See the set of graphs below and shifts in graphs )
Assume the Central Bank reduces the money supply in the economy which leads to an increase in the interest rates . ( See the set of graphs below and shifts in graphs )
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