Answer to Question #227369 in Economics for Navodya

Question

1 . Explain whether each of the following events shifts the short-run aggregate supply curve, the aggregate demand curve, both or neither. For each event that does shift a curve, draw a diagram to illustrate the effect on the economy.

a. Households decide to save a larger share of their income.

b. Sri Lankan farmers suffer a prolonged period of unfavorable weather conditions for agriculture.

c. Increased job opportunities overseas cause many people to leave the country.

Answer 1

a. Households decide to save a larger share of their income - the aggregate demand will decrease.

b. Sri Lankan farmers suffer a prolonged period of unfavorable weather conditions for agriculture - the aggregate supply will decrease.

c. Increased job opportunities overseas cause many people to leave the country - the aggregate supply will decrease.