Suppose the Economy Is Initially in Long-Run Equilibrium

question 42

Essay

Suppose the economy is initially in long-run equilibrium.For each of the shocks listed below,explain the short-run effects on output and the price level.
a.A stock market crash reduces consumers' wealth.
b.Businesses decide to hold larger inventories.
c.The government cuts defense spending.
d.Foreign countries buy more Canadian goods.

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Definitions:

Distribution Question

Refers to how the income or wealth is shared among different groups in society.

Specialization

The process of concentrating on and becoming expert in a particular subject or skill.

Productivity

The measure of output per unit of input, indicating the efficiency with which goods and services are produced.

Economic Structure

The classification of an economy based on various sectors, such as agriculture, manufacturing, and services, indicating the allocation of resources among these sectors.