What were the three shocks that the U.S. economy experienced during 2007-2009, and how did these shocks affect the IS curve, the MP curve, and the Phillips curve?
What will be an ideal response?
1. The U.S. economy experienced a financial crisis during this period, which increased the risk premium investors required before making loans. This resulted in an upward shift of the MP curve.
2. The U.S. economy experienced a real estate shock during this period, which reduced consumer wealth and residential construction. This resulted in a leftward shift if the IS curve.
3. The U.S. economy experienced a surge in oil prices during this period. This resulted in a leftward shift of the IS curve and an upward shift of the Phillips curve.
You might also like to view...
"Expansionary fiscal policy is always 100 percent effective when the short-run aggregate supply curve is horizontal." Is this statement TRUE?
A) yes, because theoretically nothing else can offset the effects of fiscal policy B) yes, when the long-run aggregate supply curve is horizontal too C) no, because crowding out could take place D) no, because the increased spending may cause the price level to increase
The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price is the
a. supply curve. b. demand curve. c. production possibilities curve. d. consumption curve.
When government runs a budget deficit, it makes up the difference by:
A. issuing government bonds. B. increasing transfer payments. C. paying down outstanding debt. D. increasing public saving.
If a firm in a perfectly competitive market raises its price
A. it will sell more products. B. it will sell nothing. C. its sales will remain unchanged. D. it will sell fewer products.