For each of the following five events, identify three things: i) whether it will impact aggregate demand or aggregate supply, ii) whether the new short-run equilibrium involves a higher or lower aggregate output level, and iii) whether the new real-price level will be higher or lower.

a)     The government announces plans to start construction on a number of hydroelectric projects

b)     Reliable reports indicate an increase in business confidence

c)     Global oil prices have increased on strong demand from China and India

d)     The government announces plans to begin subsidizing the price of bread to consumers

e)     Housing prices continue to surge upward, hitting a new all-time high

 

a). The government announces plans to start construction on a number of hydroelectric projects:

1. It will increase the aggregate supply for hydroelectric power since there will be many hydroelectric suppliers.
2. It will lead to a higher output level in the new equilibrium short run this is because the projects will be many hence production of power will be high.
3. The new real price level will be lower because the supply will be higher while the demand is the same.

b) Reliable reports indicate an increase in business confidence:

1. It will lead to increase in the aggregate demand for the products.
2. The new short run will lead to a higher output level as the consumption level will go up.
3. The real price will be higher due to increase in the demand.

c) Global oil prices have increased on strong demand from China and India

1. The supply for oil will increase in India and China due to the higher demands in those countries.
2. The new short run equilibrium will lead to higher output as the quantity supplied will increase with demand also increasing.
3. The real price will be higher in China and India due to the higher/strong demand.

d)The government announces plans to begin subsidizing the price of bread to consumers:

1. The aggregate demand will increase due to the reduction on prices as a result of subsidy.
2. The output level will increase due to the reduction in cost of production as a result of the subsidy.
3. The real price will be lower, the government subsidy will result to reduction in production cost which will then lead to low price.

e) Housing prices continue to surge upward, hitting a new all-time high:

1. The aggregate demand for the houses will go down due to the increase in prices.
2. The output level will reduce due to the decrease demand.
3. The real price will be lower. As the demand reduces the housing price will be forced to lower the prices to meet the demand/equilibrium.

Step-by-step explanation

: i) whether it will impact aggregate demand or aggregate supply, ii) whether the new short-run equilibrium involves a higher or lower aggregate output level, and iii) whether the new real-price level will be higher or lower.

a). The government announces plans to start construction on a number of hydroelectric projects:

It will increase the aggregate supply for hydroelectric power since there will be many hydroelectric suppliers.

It will lead to a higher output level in the new equilibrium short run this is because the projects will be many hence production of power will be high.

The new real price level will be lower because the supply will be higher while the demand is the same.

b) Reliable reports indicate an increase in business confidence:

It will lead to increase in the aggregate demand for the products.

The new short run will lead to a higher output level as the consumption level will go up.

The real price will be higher due to increase in the demand.

c) Global oil prices have increased on strong demand from China and India

The supply for oil will increase in India and China due to the higher demands in those countries.

The new short run equilibrium will lead to higher output as the quantity supplied will increase with demand also increasing.

The real price will be higher in China and India due to the higher/strong demand.

d)The government announces plans to begin subsidizing the price of bread to consumers:

The aggregate demand will increase due to the reduction on prices as a result of subsidy.

The output level will increase due to the reduction in cost of production as a result of the subsidy.

The real price will be lower, the government subsidy will result to reduction in production cost which will then lead to low price.

e) Housing prices continue to surge upward, hitting a new all-time high:

The aggregate demand for the houses will go down due to the increase in prices.

The output level will reduce due to the decrease demand.

The real price will be lower. As the demand reduces the housing price will be forced to lower the prices to meet the demand/equilibrium.