Answer to Question #16225 in Economics of Enterprise for babu

Question

Assume an economy operates on the middle part of its aggregate supply curve. State the direction of effect on aggregate demand or aggregate supply for each of the following changes in conditions. What is the effect on the price level, real GDP and employment?

(a) The price of crude oil rises significantly
(b) Spending on welfare and aged pensions doubles
(c) The value of the currency falls on the foreign exchange market. i.e the currency depreciates
(d) The Government halves the goods and services tax (GST) on all consumer goods
(e) The Government announces rises in company tax.

Answer 1

(a) The price of crude oil rises significantly-& Aggregate Demand decreases, aggregate supply increases, price level increases
(b) Spending on& welfare and& aged pensions doubles. Aggregate demand increases, unemployed increases
(c) The value of the currency falls on the foreign exchange market. i.e the currency depreciates. Aggregate supply increases, GDP decreases
(d) & The Government halves the goods and services tax (GST) on all consumer goods. Aggregate Supply increases, Aggregate demand decreases, price level increases
(e) The Government announces rises in company tax. Aggregate Supply increases, Aggregate demand decreases, price level increases