Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 31

For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts in long- and short-run equilibrium, and show the appropriate shifts in the AS or AD curves.
a. A stock market crash reduces people's wealth.
b. The spread of democracy around the world increases consumer confidence in the United States.
c. The European economy crashes.
d. The United States enters into an arms race with China, resulting in a significant increase in military spending.
e. A revolution in Iran results in a significant reduction in the world's supply of oil.
f. Terrorist activities temporarily halt the ability of Americans to engage in certain productive activities such as transportation and finance.
g. Intel develops a new computer chip that is faster and cheaper than previous chips.
h. A summer of perfect weather in the Midwest leads to record harvests of corn, wheat, and soybeans