Each of the events listed will shift either aggregate demand or short-run aggregate supply. match each event with its result.

question

1.the government raises taxes and cuts its own spending in order to reduce its budget deficit

2.planned investment rises.

3.commodity prices fall

4.labor productivity falls while nominal wages stay the same

5.exports rise while imports stay constant.

6.nominal wages rise while productivity stays the same.

all answer choices
a. aggregate demand shifts to the left.
b. aggregate demand shifts to the right.
c. short run aggregate supply shifts down and to the right.
d. short run aggregate supply shifts up and to the left.

See below.

Explanation:

For question 1, the aggregate demand shifts to the left as raising taxes and cutting government expenditure is a contracting fiscal policy. Raised taxes will leave people with less disposable income to spend and lees government demand will also result in reduced aggregate demand thus shifting AD curve to the left . Matched with A.

For question 2, with rise in planned investment, the aggregate demand shifts to the right. As more firms demand for capital goods the aggregate demand curve shifts to the right. In the long run the aggregate supply curve will also shift to the right due to increased production capacity. Matched with B.

For question 3, commodity prices are directly linked with aggregate demand. A fall in prices increases the quantity demanded and thus shifts the AD curve to the right. Matched with B.

For question 4, SAS curve shifts up and to the left. Since the cost of labor has stayed the same and productivity has fallen, per product manufactured is now more expensive and the aggregate supply is less due to fallen productivity. Matched with D.

For question 5, an increase in exports would mean more employment as more of the production is needed to to be sent out to foreign countries. More employment means people have more money to spend and as such they demand more goods and services thus pushing the aggregate demand curve to the right. Matched with B.

For question 6, an increase in nominal wage rate will shift the aggregate supply curve to the left as in the short run this has increased the cost of production. As such less of the goods will be supplied and at a higher price reflecting a change in costs for the producers. Matched with D.

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