Practice—for each one write how AD will change and how PL

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Transcript Practice—for each one write how AD will change and how PL

Practice—for each one write how AD will change
and how PL, GDP, U, and π will change
• Congress cuts taxes
• Autonomous decrease in investment
spending
• Government spending to increase;
president promises no increase in taxes
• Survey shows consumer confidence jumps
• Stock market crash; investors lose billions
• Productivity rises for fourth straight year
• President cuts defense spending by 20%
• The dollar depreciates
Answers—No peeking! 
• DI increases, AD to the right, GDP, Inflation, Price level all increase;
unemployment goes down. Yes, you MUST have the DI in there (disposable
income).
• Ig decreases, AD to the left, GDP, inflation, price level all go down;
unemployment goes up (recession)
• G goes up, AD to the right etc. etc.
• C goes up, AD to the right, etc. etc.
• C goes down, AD to the left, etc. etc.
• No change on AD. That’ll be a short run aggregate supply issue
• G goes down, AD to the left, etc. etc.
• $ decreases, X go up, M go down, Xn goes up, AD to the right, etc. etc.