Answer
a) Wealth decreases when stock prices fall. In turn, the aggregate demand curve moves to the left. In turn, the price level and output quantities decrease. However, in the long run, output returns to its normal level. Additionally, the price level stays at the lower level (in the long run).
b) The increase in government spending shifts the long run aggregate supply to the right. In the short run, the price level and output quantity both increase. In the long run, the price level increases even higher while the the output returns to its initial quantity.
Work Step by Step
c) The aggregate supply curves shift to the right due to the technological improvements. In the short run, the output and price levels both increase. In the long run, output increases again while the price level decreases.
d) When foreigners buy fewer U.S. goods, the aggregate demand curve moves to the left. In the short run, the price increases while the quantity decreases. In the long run, the price falls even more while output returns to its initial quantity.
