In which direction would sras shift in each of the

13. In which direction would SRAS shift in each of the following cases?
a. Increase in the size of the labor force and the size of the capital stock— right
b. Technological advance—r ight
c. Expected increase in the future price level— left
d. Workers and firms adjust to an unanticipated decrease in the price level —right
e. Oil price shock— left
f. Increase in productivity— right
14. Draw a graph of the LR macroeconomic equilibrium where AD = LRAS = SRAS at price level 100 and
output at potential, . Label the axes. Explain.
15. Starting from LR equilibrium above, show how a leftward shift in AD (decrease in Investment spending)
can cause a recession.
a. Where is SR equilibrium? What is the immediate adjustment to SR equilibrium? Describe the
economy’s automatic adjustment (i.e., no policy intervention) back to
Y
.

Firms step up production to try to meet the increase in AD (expansion)
Why? Output prices rise (shortage) relative to input prices (sticky/fixed); % ∆
b. What happens to wages and prices as the economy returns to
Y
from the SR equilibrium? Why?
=
16. In your analysis above, what critical assumption must hold in order for the economy to return to LR
equilibrium (i.e., automatic adjustment w/o policy intervention)?
17. The adoption of the Internet (a technological innovation): p. 128-A in packet
a. Was the Internet a positive or negative shock to the U.S. economy?
b. Was adoption of the Internet a shock to supply or demand? SRAS shifted to the right.
c. How did the Internet affect worker productivity?
d. How was the AD/LRAS/SRAS model of the U.S. economy affected? Was AD affected?