Question

Real-world economies get hit with lots of shocks to aggregate demand and real shocks. Categorize each scenario as an aggregate demand shock or a real shock. How does each shock affect the aggregate demand curve and the long run aggregate supply curve of United States Economy? (i.e., Increase A/D, Decrease A/D, Increase LRAS, Decrease LRAS). a) Steelworkers go on strike, so less steel is produced Select b) A tornado destroys factories in Louisiana. Select c) Consumer optimism increases. Select d) The stock market rallies to 52-week highs increasing consumer wealth.

Answer 1

Answer:

a)  Decrease LRAS

b)  Decrease LRAS  

c)  Increase AD

d)   Increase AD  

Explanation:

steel workers go on strike so less steel is produced : this will cause a decrease in the log run aggregate supply of steel in the economy

A tornado destroys factories in Louisiana.: this will cause a decrease in the log run supply of factory products and by-products in the economy

Consumer optimism increases.leads to an increase in the aggregate demand curve

The stock market rallies to 52-week highs increasing consumer wealth. this will definitely lead to an increase in the aggregate demand curve because with more money to spend the demand curve will increase