Homework SourseUse the AD AS model to predict the impact on the economy fro
Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity?
a. The curve will shift (AD or AS)
b. The curve will shift (left or right)
c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower)
d. The new equilibrium real GDP will be (higher or lower).
e. The unemployment rate will be (higher or lower)
Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity?
a. The curve will shift (AD or AS)
b. The curve will shift (left or right)
c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower)
d. The new equilibrium real GDP will be (higher or lower).
e. The unemployment rate will be (higher or lower)
Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity?
a. The curve will shift (AD or AS)
b. The curve will shift (left or right)
c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower)
d. The new equilibrium real GDP will be (higher or lower).
e. The unemployment rate will be (higher or lower)
Solution
Firms purchasing smartphones for employees is a business investment, therefore the purchase will increase investment demand, in turn increasing aggregate demand. As a result,
(a) AD curve will shift, and AS will remain unchanged in short run.
(b) AD curve will shift to right.
(c) Rightward shift of AD curve will increase price level, so FDP Deflator index will be higher.
(d) Real GDP will be higher. As a result,
(e) Unemployment rate will be lower.
