Consider an economy in equilibrium as discussed in Chapter 13 section 3 of your text and in the graph depicted above. How would the following events change the equilibrium (hint: only one curve will shift)? Highlight your response.
1. Government spending increases due to an impending military incursion.
AS (increase / decrease / stay the same)
AD (increase / decrease / stay the same)
Inflation rate (increase / decrease / stay the same)
Output (increase / decrease / stay the same)
2. A new technology is developed which increases worker productivity for all firms.
AS (increase / decrease / stay the same) supply shock prices lower
AD (increase / decrease / stay the same)
Inflation rate (increase / decrease / stay the same)
Output (increase / decrease / stay the same)
