Unit 8 Managerial Economics
Determine whether each of the following would cause a shift of the aggregate demand (AD) curve, a shift of the aggregate supply (AS) curve, neither, or both. Which curve will shift, and in which direction? What will happen to aggregate output and the price level in each case?
The price level decreases.
 
 
Which curve will shift?
Which direction does it shift?
 
What will happen to aggregate output?
 
What will happen to the price level?
 
 
Consumer confidence increases.
 
Which curve will shift?
 
Which direction does it shift?
 
What will happen to aggregate output?
 
What will happen to the price level?
 
The supply of resources decreases.
 
Which curve will shift?
Which direction does it shift?
What happens to aggregate output?
 
What happens to the price level?
 
 
The wage rate decreases.
 
Which will curve shift?
 
Which direction does it shift?
 
What will happen to aggregate output?
 
What will happen to the price level?
 
Explain whether each of the following statements is true or false.
 
The majority of people who are officially unemployed are not in the labor force.
Some people in the labor force are not working.
Everyone who is not unemployed is in the labor force.
 
Not all people who are not working are unemployed.
 
 
Refer to the following data on the U.S. consumer price index and answer the questions below.
Year
 
CPI
 
Year
 
CPI
Year
CPI
Year
CPI
 
1988
 
125.8
1993
 
152.0
 
1998
 
160.5
2003
191.5
1989
131.5
 
1994
 
155.7
1999
 
174.1
 
2004
 
196.4
1990
137.5
1995
159.9
 
2000
 
179.7
2005
 
202.8
 
1991
 
143.7
 
1996
 
164.4
 
2001
 
184.6
 
2006
 
209.3
 
1992
 
147.5
 
1997
 
168.0
 
2002
 
187.4
 
Compute the inflation rate for each year (1988–1989, 1989–1990, 1990–1991, 1991–1992 etc.) using the CPI data for 1988–2006 in the table above. Show your work.
 
Which years were years of inflation? What would you expect to happen to real interest rates during this time period if nominal rates remained unchanged?