Reference no: EM131091947
For the following 5 scenarios use the answers:
a. price level=175; real GDP=3000
b. price level=175; real GDP=2600
c. price level=155; real GDP=2825
d. price level=155; real GDP=2675
Start by drawing the Short-Run Aggregate Supply and Aggregate Demand diagram with short-run equilibrium at Price Level = 165 and real GDP = 2750. Next, the following shock hits the economy:
1. There is a sudden rise in household wealth as the stock market rises 30% in value in a short time.
2. Turmoil in the Persian Gulf region leads to a sudden 60% increase in the price of oil.
3. After a couple years of below average economic growth, households are becoming more optimistic about economic conditions and their expected gains over the next several months.
4. After a couple years of below average economic growth, workers revise their expectations on wages downard and as a result the average wage across the economy falls by 4%
5. The Federal Reserve (our central bank) reduces the money supply in order to raise interest rates.
Which of the outcomes below could be the new short-run equilibrium after the shock?
a. price level=175; real GDP=3000
b. price level=175; real GDP=2600
c. price level=155; real GDP=2825
d. price level=155; real GDP=2675
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