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:

Peer Interactions

Social engagements and exchanges between individuals of similar age groups or social status.

Social Skills

Abilities used to interact and communicate effectively with others in a social context.

Initiative Versus Guilt

A stage in Erik Erikson's theory of psychosocial development where children aged approximately three to six years face the challenge of initiating activities or feeling guilty for their actions.

Psychological Development

The development of emotional, intellectual, and social capabilities and functioning across a person's lifespan.