I need to know which way aggregate demand (AD) shifts according to scenarios and why:
1) Economic booms in both Japan and Europe result in massive increases in orders for exported goods from the United States.
2) As part of its countercylical policy, the government both reduces taxes and increases transfer payments.
3) While the U.S. was in the midst of the Great Depression, a foreign power attacked, Congress declared war and more than 1,000,000 soliders were drafted in the first year while defnese spending was increased several times over.
4) The balance the budget, the federal government cuts Social Security payments by 10% and federal aid to education by 20%.
Supply issues (SRAS- which way does it shift and why)
1) New environmental standards raise the average cost of autos and trucks 5%.
2) Fine weather results in the highest corn and wheat yields in 40 years.
3) Because of decreased international tension, the government sells off thousands of army-surplus Jeeps and trucks at prices that are far less than the market price for their commerical counterparts.
4) An enemy power sets up a blockade of the sea lanes leading to a country, and most ships refuse to deliver cargo through blockade.
Thank you :)
1) In scenario 1, an economic boom in both Japan and Europe leads to massive increases in orders for exported goods from the United States. This would result in an increase in aggregate demand (AD) because there would be higher demand for U.S. goods from these countries. As a result, the AD curve would shift to the right. The reason for this shift is that when there is an increase in demand for U.S. goods, businesses will need to produce more, which would lead to higher levels of employment and increased spending in the economy.
2) In scenario 2, the government reduces taxes and increases transfer payments as part of its countercyclical policy. This countercyclical policy aims to stimulate economic activity during a downturn. Reducing taxes puts more money in the hands of households and businesses, leading to increased consumer spending and investment. Increasing transfer payments provides additional income to individuals, which also increases spending. Both of these actions would lead to an increase in aggregate demand, causing the AD curve to shift to the right.
3) In scenario 3, during the Great Depression, a foreign power attacks, Congress declares war, and over 1,000,000 soldiers are drafted in the first year, while defense spending is increased several times over. This would result in a significant increase in government spending, particularly in defense. Increased government spending directly contributes to aggregate demand by increasing demand for goods and services in the economy. The AD curve would shift to the right due to the increased government spending.
4) In scenario 4, the federal government cuts Social Security payments by 10% and federal aid to education by 20% to balance the budget. These cuts in government spending would decrease aggregate demand. When Social Security payments and federal aid to education are reduced, individuals and institutions would have less disposable income and, therefore, less ability to spend. This reduction in spending would shift the AD curve to the left.
Now, let's look at the supply issues (SRAS):
1) New environmental standards raise the average cost of autos and trucks by 5%. When the average cost of production increases, businesses would be less willing to supply goods and services at the same price levels as before. This results in a decrease in aggregate supply. The SRAS curve would shift to the left due to the higher costs of production resulting from new environmental standards.
2) Fine weather resulting in the highest corn and wheat yields in 40 years would increase the supply of agricultural products. When supply increases, businesses can produce and offer more goods and services at the same price levels. This would lead to an increase in aggregate supply. The SRAS curve would shift to the right due to the increased supply of corn and wheat.
3) When the government sells off thousands of army-surplus Jeeps and trucks at prices that are far less than the market price for their commercial counterparts, it would increase the supply of these vehicles in the market. The increased supply would shift the SRAS curve to the right since businesses can offer more goods and services at the same price levels.
4) In the scenario where an enemy power sets up a blockade of sea lanes, causing most ships to refuse delivering cargo, it would disrupt the supply chain and decrease the supply of goods. With the reduced supply of goods, the SRAS curve would shift to the left due to the limited availability of goods and services.