Give an algebraic or graphical answer of the effects of each of the following events in AD/AS MODEL .?

Question

than explain in words te economics that underlies your ansqwer

a)The sensitivity of investment to the interest rate decreases

b) Investors become bearish and decrease investment

c) Money demand is hit by a negative shock (people reduce their holding for

precautionary motives)

d) The economy is hit by a positive oil shock that reduces the price of oil

e) Competition is enhanced by introducing some anti-trust laws

f) Trade unions become more powerful

g) A trading partner is hit by a negative shock that leads to a reduction of its

imports.

PLEASE HELP AND THANKS

Answer 1

a) AD in short-run will shift right as investment increases more than it was with higher sensitivity. LRAS will shift right a bit due to more investments.

b) AD will shift left in short-run and in long-run expansion of LRAS will be slower.

c) Depends on how excessive money will be used, but in general it will reduce interest rate, increase investment and partially consumption, thus AD will shift right.

d) Rightward shift of AS curve, price level drops.

e) Rightward shift of AS curve, price level drops.

f)  Leftward shift of AS curve (opposite to previous, because may lead to less competition if it is related to internal markets).

g) Net export increases because of fall in imports, thus rising domestic price level (gap between AD and AS at world price level vs domestic price level).

Answer 2

all is at peace with the world then