Question

Explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregate-demand curve, both, and neither. Households decide to save a larger share of their income. Florida orange groves suffer a prolonged period of below-freezing temperatures. Increased job opportunities overseas cause many people to leave the country.

Answer 1

Answer:

1. Households decide to save a larger share of their income. - Aggregate-Demand Curve

If households in the economy started saving more of their money then this would leave less money for consumption which is one of the components of Aggregate Demand. When Consumption decreases so also will Aggregate Demand thereby shifting the Aggregate-Demand Curve to the left.

2. Florida orange groves suffer a prolonged period of below-freezing temperatures. - Short-run Aggregate Supply Curve

With the Florida Orange Groves suffering from below freezing temperatures, the oranges will not grow as much leading to a poor harvest. This will reduce the supply of oranges in the economy and shift the short-run Aggregate supply curve left.

3. Increased job opportunities overseas cause many people to leave the country. Both Aggregate-Demand Curve and Short-run Aggregate Supply Curve.

With less people in the Economy, there will be less people spending on goods and services which will cause the Aggregate Demand curve to shift to the left.

Also with people leaving the country, the labor force will decrease which will mean that less people are available to produce goods and services so the short-run Aggregate supply curve will shift left.