What will happen to unemployment and the price level in each of the following situations? Use an AS- AD diagram to explain your answers.
in an economy deep in recession, the government cuts taxes productivity rises
in an economy near potential GDP, business investors fear that the economy is slowing down
Using AS-AD diagrams, illustrate each of the following economic situations by showing the patterns and shifts of either AS or AD that could cause them to happen:
a rise in the price level triggered by higher oil prices;
a rise in inflation that happens four years in a row because government spending keeps increasing;
foreign investors gain confidence and increase the level of investment in the U.S. economy;
the economies of trading partners grow very slowly, leading to a decrease in exports to those countries
output declines slightly but the price level falls a great deal.