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During such periods, the economy produces fewer goods and services; thus, real GDP falls and unemployment rises. A sudden crash in the stock market shifts. A stock market crash, or any event that causes consumers to cut back in spending and firms to cut back in their investments, reduces aggregate demand at any given price level.

Economics - N. Gregory Mankiw, Mark P. Taylor - Google Livres

A change in the expected price level shifts. A change in the expected price level shifts the short-run aggregate-supply curve. If people expect lower prices in the future, they will accept lower wages that is, supply more labor for any given price level and set lower prices or produce more output at any given price level.

This would be reflected in a rightward shift of the short-run aggregate-supply curve. In the long run, however, an increase in aggregate demand has no impact on output and affects only the price level, as wages and prices adjust to bring output back to the natural rate of output.

Stagflation is caused by. Stagflation is a period of time where output is falling and prices are rising. When firms experience an increase in the costs of production, selling goods becomes less profitable, and firms supply less output at any given price level.

The idea that economic downturns result from an inadequate aggregate demand for goods and services is derived from the work of which economist?

Suppose the economy is in a long-run equilibrium, then experiences a stock market crash causing aggregate demand to fall.

A stock market crash leads to a leftward shift of aggregate demand. The equilibrium level of output and the price level will fall.

Because the quantity of output is less than the natural rate of output, The unemployment rate will rise above the natural rate of unemployment.

Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run assuming there is no change in policy.

If nominal wages are unchanged as the price level falls, firms will be forced to cut back on employment and production. Over time, as expectations adjust, the short-run aggregate-supply curve will shift to the right, moving the economy back to the natural rate of output.

Events that will increase Long-Run Aggregate Supply.

The United States experiences a wave of immigration, which increases the labor force curve shifts to the right Intel invents a new and more powerful computer chip, productivity increases, so long-run aggregate supply increases because more output can be produced with the same inputs. Events that will decrease Long-Run Aggregate Supply.

When a severe hurricane damages factories along the East Coast, the capital stock is smaller, so long-run aggregate supply decreases. Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. What happens to output and the price level as the economy moves from the initial to the new short-run equilibrium?

Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization - Mr. Sergio L. Schmukler, Graciela Laura Kaminsky - Google Livres

Aggregate supply and demand both increase If the central bank increases the money supply, the aggregate demand curve shifts to the right, with the new short-run equilibrium. Thus, in the short run, both output and the price level increase. Over time, as nominal wages, prices, and perceptions adjust to the new price level, the short-run aggregate-supply curve shifts to the left, returning the economy to the natural rate of output. What causes the economy to move from its short-run equilibrium to its long-run equilibrium?

Nominal wages, prices, and perceptions adjust upward to this new price level. Judging by the impact of the money supply on nominal and real wages. The aggregate-demand curve slopes downward because. The long-run aggregate-supply curve is vertical because.

How does the stock market affect the economy? | Economics Help

If firms adjusted prices quickly and if sticky prices were the only possible cause for the upward slope of the short-run aggregate-supply curve, then the short-run aggregate-supply curve would be. An economy could enter a recession if either the aggregate-demand curve or the short-run aggregate-supply curve were to shift to the.

According to the sticky-price theory, the economy is in a recession because. According to the misperceptions theory, the economy is in a recession when the price level is.