Answer:
a.A change in the price level would cause a movement along the aggregate demand and aggregate supply curves. This is because a change in price level will cause only a change in slope of both the curves not their intercepts.
Thus, neither the aggregate demand curve nor the aggregate supply curve will shift, but the aggregate output and price level will change.
b.Decline in consumer's confidence will shift the aggregate demand to the left, because less consumer confidence reduces the aggregate output demanded at each price level.
Shift in aggregate demand will cause both aggregate output and price level to fall.
c.An increase in supply of resources will shift the aggregate supply curve to the right, because more output can be produced at each price level with increase in supply of resources.
Shift of aggregate supply curve to the right will cause the aggregate output to increase but the price level to fall.
d.An increase in wage rate will shift the aggregate supply curve to the left, because increase in wage rate will raise the cost of production.
A shift of the aggregate supply curve to the left will cause the aggregate output to fall but price level to rise.
Answer:
Leading economic indicators:
Economic indicators which change prior to the change in other economic activities are called leading economic indicators.
The prior change in leading economic indicators leads to the future direction of the overall economic activity.
Leading economic indicators will move downwards prior to a recession and upward before an expansion.
Examples: Stock market index, consumer confidence, manufacturer's new orders, interest rate spread, and household spending on durable goods, etc.
Answer:
Economic fluctuations:
An economy's economic fluctuations can be captured through periods of expansion and periods of contraction.
In general, one period of expansion will be succeeded by another. Similarly, one period of contraction will be succeeded by several other periods of contraction.
Contraction:
Periods of contraction can be either recessions or depressions. Initially, the periods of contraction are marked by several periods of recessions and later by several periods of depressions.
Considering the reduction in aggregate output and the level of unemployment, recessions are less severe than depressions.
The tenure of recessions is smaller than that of depressions. According to classical economists, recession lasts at least two consecutive quarters, while depression lasts more than a year.
However, the continuity of recessions or depressions throughout different periods depends on the economy's leading economic indicators.
The end of the contraction is marked by the lowest point or trough.Expansion:
After trough, the economy enters an expansion period. Initially, the expansion period is marked by recovery and in the later stage by boom.
In the expansion period, total output increases until the economy moves through the recovery period, and then the boom period to achieve its peak.
Long-term growth of the economy:
Long-term growth of the economy is possible because of an increase in effective demand over time as the population increases.
Increase in effective demand will induce an increase in the level of aggregate output.
Hence, the growth during expansions is more than the growth during recessions over time. As a result, expansions and contractions are measured as movements above and below the long-term trend line.