Consider a typical short-run AS/AD model which consists of AD and SRAS curves. In each of the following cases, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. (You don’t need to draw a graph in this problem. Explain in words.)
(1) An increase in the quantity of money by the Federal Reserve increases the quantity of money that people wish to lend, lowering interest rates.
(2) Greater union activity leads to higher nominal wages.
(3) A fall in the aggregate price level increases the purchasing power of households’ and firms’ money holdings. As a result, they borrow less and lend more.