Suppose the Economy Is Initially in Long-Run Equilibrium

question 16

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 U.S.goods.

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Definitions:

Self-Control

The ability to regulate and manage one's thoughts, emotions, and actions, especially in tempting or difficult situations.

Good Health

A state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.

Socially Inept

Describes individuals who struggle with social skills and often find it difficult to interact effectively with others.

Pessimism

Pessimism is the tendency to see the worst aspect of things or believe that the worst will happen; a lack of hope or confidence in the future.