Economics

3. Starting from short-run equilibrium, the following occurs: Labor productivity rises, and individuals expect higher (future) incomes. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?

a.Real GDP will fall, the unemployment rate will rise, and the price level will rise.
b.Real GDP will rise, the unemployment rate will fall, and the effect on the price level cannot be determined.
c.Real GDP will rise, the unemployment rate will fall, and the price level will fall.
d. Real GDP will fall, the unemployment rate will rise, and the effect on the price level cannot be determined.
e. Real GDP will rise, the unemployment rate will rise, and the price level will rise.
I found out that the answer is b, but why is this the case.

5. Starting from short-run equilibrium, the following occurs: The interest rate rises, and foreign real national income rises. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?
a. The price level will rise, Real GDP will fall, and the unemployment rate will rise.
b The price level will fall, Real GDP will fall, and the unemployment rate will rise.
c. The price level will rise, Real GDP will rise, and the unemployment rate will rise.
d. The price level will fall, Real GDP will fall, and the unemployment rate will fall.
e.There is not enough information to answer this question.

I found out that the answer is e, but why is this the case? I would think that the interest rate rising would affect the aggregate demand curve to shift to the left. Is it the answer e because the foreign real income rises is not enough information to give a complete picture on the effects on the price level, Real GDP, and the unemployment rate in the short run.

6. Starting from short-run equilibrium, the following occurs: Individuals expect higher (future) incomes, and wage rates rise. What will be the effects on the price level, Real GDP, and the unemployment rate in the short run?
a. The price level will rise, Real GDP will rise, and the unemployment rate will fall.
b. The price level will fall, Real GDP will fall, and the unemployment rate will rise.
c. The price level will rise, but the effects on Real GDP and the unemployment rate cannot be determined.
d. Real GDP will rise, the unemployment rate will fall, and the effect on the price level cannot be determined.
e. none of the above.

I found out that the answer is c. Why is this the case? The only thing I can think of is that the expectation of higher(future) incomes does not give indication of how the Real GDP and the unemployment rate will go since this is an expectation of what income will be in the future.

3. Draw aggregate supply and demand curves. An increase in productivity causes the supply curve to shift out. An increase in income causes the demand curve to shift out. On your graph, what happens to P ?? and what happens to Q ?? Since Q must have gone up and because labor productivity went up, more labor must have been used -- ergo, unemployment when down.

5. Again start with a supply/demand graph. When interest rates rise, investment falls. Investment is a component of aggregate demand, so aggregate demand falls. However, when income of foreigners rises, they demand more goods, domestic or imported. So, aggregate demand rises.

6. Agains start with a supply/demand graph. When wages rise, supply curve shifts inward. However, an increase in expected future incomes would lead to an increase in demand today -- shift the demand curve outward. (Most people will put more purchases on their credit card if they know (or believe) next years income will be better.) What happens to P ?? what happens to Q??

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