Essay about Unit 8 Answers

1397 Words Jul 30th, 2015 6 Pages
Unit 8 Answers

1) Long-run Macroeconomic Equilibrium and Stock Market Boom
Let us assume the economy reaches its long-run macroeconomic equilibrium in 2020. When the economy is in the long run macroeconomic equilibrium, the stock market will also reach its boom. This will in turn lead to increases in stock prices more than expected, and the stock prices will stay high for some period.
Answer the following questions based on the scenarios of long macroeconomic equilibrium and consequent stock market boom.

a) Which curve will shift? Is it AS curve or AD curve? In which direction does the shift occur?

The aggregate demand curve will shift right

b) In the short-run, what will happen to the price level and output (real GDP)?

In the
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The reduction in wages lowers costs of production, so firms are willing to produce more at any given price level. Consequently, the short-run aggregate supply curve shifts right. The rightward shift in aggregate supply eventually causes output to rise back to the natural rate.
4) A number macroeconomic variables decline during recessions. One of these variables is the GDP.

a) What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the declines in these economic variables which are to be expected.

Variables that fall along with real GDP include employment, incomes, investment, sales, and home purchases. GDP may be measured as either the production of, expenditures on, or income generated from final goods and services. It follows that any other variable that could be used to measure production, expenditures, or income will generally move in the same direction as GDP.

b) Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?
Besides GDP, during recessions, income, profits and investment declines. The price level of goods and services declines during recessions. The aggregate demand and supply also declines and so does consumer spending and

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