Identify whether the following cases mentioned in part 1 to 5 represent an “Aggregate Demand shock” or “Aggregate Supply shock”, graphically sketch the impact of each shock within AD-AS framework, and discuss the role a stabilization policy can play in each case to counter the shock.

Identify whether the following cases mentioned in part 1 to 5 represent an “Aggregate Demand shock” or “Aggregate Supply shock”, graphically sketch the impact of each shock within AD-AS framework, and discuss the role a stabilization policy can play in each case to counter the shock: 1. People living in the economy have become inclined to hold more money due to lack of trust on financial markets which provide alternative means of keeping their money. 2. ‘Drought’ has struck the economy badly and has caused major destruction to the yields of many crops. 3. Central bank decides to increase money supply. 4. Firm owners decide to provide fewer capital units to the labor they have employed. 5. If the specific economy is subject to energy crisis.
The post Identify whether the following cases mentioned in part 1 to 5 represent an “Aggregate Demand shock” or “Aggregate Supply shock”, graphically sketch the impact of each shock within AD-AS framework, and discuss the role a stabilization policy can play in each case to counter the shock. .

Open chat
%d bloggers like this: