What happens step-by-step as a result of that change

Reference no: EM133582977

	1 year ago	Now
GDP	$750 billion	$700 billion
GDP per capita	$50,000	$45,000
Unemployment rate	6.2%	7.3%
Labor force participation rate	73%	62%
Inflation rate	0%	-5%
CPI	100	95

a. Is this economy in better shape or worse shape now than it was one year ago? (That is, is this economy in an expansion or in a recession?) Justify your answer carefully and completely, being sure to incorporate each of the six pieces of information into your assessment. If you perform a calculation as part of your answer, you must show all the steps in that calculation.

b. Use Aggregate Demand-Aggregate Supply analysis to explain how the economy moved from its position one year ago to its position now. That is, what shift in Aggregate Demand or Aggregate Supply would have caused the changes in GDP, unemployment, and the price level shown in the table above?

Question 2. Suppose that consumers decide to save less and instead spend a larger percentage of their incomes. Use Aggregate Demand-Aggregate Supply analysis to explain the effects of this change in spending on equilibrium GDP, unemployment rate, and inflation rate.

The phrase "use Aggregate Demand-Aggregate Supply analysis" means that you should explain your answer in terms of how the change in spending will affect Aggregate Demand or Aggregate Supply, and then explain what happens step-by-step as a result of that change. A full-credit answer will explain the step-by-step process in correct order, indicating what causes what.

Question 3. In 2011, a record-breaking earthquake hit Japan; the earthquake was followed immediately by a giant tsunami (a tidal wave). This natural disaster destroyed a lot of the productive capacity of the Japanese economy, including factories, roads, and power-generating facilities.

a. Use Aggregate Demand-Aggregate Supply analysis to explain the short-run effects of the natural disaster on the Japanese economy. In particular, what did the tsunami do to Japanese GDP, unemployment rate, and inflation rate?

b. Use Aggregate Demand-Aggregate Supply analysis to explain the effects of the natural disaster, which hit Japan and not the US, on the US. In particular, what did the tsunami do to US GDP, unemployment rate, and inflation rate?

Reference no: EM133582977

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