Question: Exercise 8 (2 x 10 = 20 points) What effects would each of the following have on aggregate demand or aggregate supply, other things equal?

Exercise 8 (2 x 10 = 20 points)

What effects would each of the following have on aggregate demand or aggregate supply, other things equal? In each case make a GRAPH to show the expected effects on the equilibrium price level and the level of real output, assuming that the price level is flexible both upward and downward.

a)A decrease in interest rates at each price level.

b)Worldwide oil prices surge to unprecedented levels. Oil is an important input material for the U.S. industry.

Answers

a)A decrease in interest rates at each price level.

b)Worldwide oil prices surge to unprecedented levels. Oil is an important input material for the U.S. industry.

AS or AD affected?

MAKE A GRAPH FOR BOTH A AND B, TELL WHICH ITS AFFECTED BY AGGREGATE DEMAND OR AGGREGATE SUPPLY. DIRECTION (LEFT/ RIGHT), PRICE (UP/DOWN), OUTPUT (UP/DOWN)

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