Discussion:
Part I: Aggregate Demand and Aggregate Supply
Assume the U.S. economy is in long-run equilibrium. Analyze each of the following events independently and include answers to the following in your analysis:
(1) Explain whether aggregate demand or aggregate supply changes and why the change occurred.
(2) Explain what happens to the equilibrium price level and equilibrium output in the U.S.
(3) Draw a graph to illustrate your answer.
(4) Once aggregate demand or aggregate supply changes, the economy will no longer be in long-run equilibrium. It will be in short-run equilibrium in either a recessionary or an inflationary gap. Identify which type of gap exists.
(5) In long-run equilibrium, the economy operates at full-employment and achieves the natural rate of unemployment. When aggregate demand or aggregate supply changes, what happens to the unemployment rate? Is it above or below the natural rate of unemployment?
a.Due to continuing expansion of fracking in the United States and Canada, oil prices continue to decrease.
b.The U.S. economy continues to rebound. The Federal Reserve increases interest rates.
c.After six years of economic expansion, residents in the U.S. finally see wages start to increase.
d.Consumer confidence continues to rise, and consumer spending increases.