Question: Assume we start at full-employment output in our AD-AS model. Now, assume that the stock market booms and this causes a rise in investment and

Assume we start at full-employment output in our AD-AS model. Now, assume that the stock market booms and this causes a rise in investment and consumption.

a) How would this affect prices and output in the short-run? Graph it please and carefully explain why prices and output change the way they do (use only AD-AS model).

b) How would this affect prices and output in the long run? Again, graph it and carefully explain why prices and output change the way they do (use only AD-AS model).

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Detailed answers.. Now, suppose that a period of exceptionally good weather doubles the grape harvest in Europe. In the following graph, show the effect of this change in weather conditions on the...

Assume a domestic stock market crash causes both consumption and investment to decrease at Home. Assume an economy's government responds by using monetary policy to stabilize output. Assume exchange...

G h docs.google.com + G 3.4 Long-Ru.. G 3.5 Equilibrium.. G 3.7 Long-Run... G 3.8.1- Fiscal. G Macro Topic... Dashboard G Macro Topic... G Macro Topic... |3.3 Short-Ru.. G 3.6 Changes... 1. Identify...

Topic 3.1 - Aggregate Demand (AD) 13. Canadians buy more Arnericanmade cars 14. Lower interest rates affect investment L L Part 3 - Making Connections- Read the quote regarding the Great Recession...

4 Files 3:18 PM Fri May '13 Insert Draw Layout Review View Unit SMacroeconomic Policy Name: HR: FISCAL POLICY Use the space below to take notes during class. Disposable Income: How does a change in...

4 Files 3:17 PM Fri May 13 Insert Draw Layout Review View Unit SMacroeconomic Policy Name: HR: POLICY BASICS Use the space below to take notes during class. The Federal Reserve: Monetary Policy:...

MACROECONOMICS To round off this section, we illustrate the benefits of an FIGURE 19-6 An increase in productivity without any increase in remuneration increase in productivity without any...

MACROECONOMICS (TEXTBOOK USED IS ECONOMICS FOR SOUTH AFRICAN STUDENTS FIFTH EDITION PHILIP MOHR AND ASSOCIATES) To round off this section, we illustrate the benefits of an FIGURE 19-6 An increase in...

Can you please help me solve these 10 Econ questions? I also attached the chapter just in case. Thanks so much!! :) MARKETS AND HOW THEY WORK 177 9.0 CHAPTER 9 LEARNING GOALS After reading this...

HI PLEASE ANSWER ALL 78 MULTIPLE CHOICE QUESTIONS THANK YOU 1. Which of the following will lead to a decrease in both equilibrium price and quantity in a market? a)A decrease in demand b)An increase...

Consider the free electron gas comprising of N molecules in one dimension, confined in a region of length L at zero temperature. The Fermi-Energy is h (3N 2m 8L h (N 2m 2L Oh (N 2m 2L 3/3 33 h N ORG...

On the basis of the given information, rank the following portfolios in the order of expected portfolio returns, starting with the portfolio having the highest expected returns. Portfolio Total Risk...

As a method to address a buyer's objections, a salesperson would ask permission to answer the objections at a later time using the _ _ _ _ _ . Multiple choice question. referral method compensation...

Can you think of any financial innovation in the past 10 years that has affected you personally? Has it made you better or worse off? In what way?

Tonys favorite memories of his childhood were the times he spent with his dad at camp. Tony was daydreaming of those days a bit as he and Suzie jogged along a nature trail and came across a wonderful...

Write a letter to your legislative representative taking a stand either for or against the government taking control of such situations and deciding when people in Jewell Maries situation can be...

A company has determined that the EOQ for its only raw material is 2000 units every 30 days. The company knows with certainty that a four-day lead time is required for ordering. The following is the...

A laminar flow occurs between two horizontal parallel plates under a pressure gradient dp/ds (dp/ds is a constant and the sign of dp/ds is negative.). The upper plate moves left with a speed ut. The...

Write a program to wish happy birthday to a student. Firstly, take today month and day as an input and secondly take birthday as an input in the form of month and day. If the input day and month...

10. Choose someone you know and answer the following questions: a) Does this person have a low or high level of competence in a particular field? b) Do you have a low or high level of confidence in...

1. To gain insight into how a communication situation can be framed to maximize impact.

2. We can change the use and meaning of the concepts and thereby the meaning of the social reality to which they refer.