Question

Which of the following factors will cause a recession in an economy showing a long-run equilibrium? (2 points) A negative supply shock that causes an increase in output and an increase in the price level A negative demand shock that causes an increase in output and an increase in the price level A positive supply shock that causes a decrease in output and a decrease in the price level A positive demand shock that causes a decrease in output and an increase in the price level A negative demand shock that causes a decrease in output and a decrease in the price level

          Which of the following factors will cause a recession in an economy showing a long-run equilibrium? (2 points)
A negative supply shock that causes an increase in output and an increase in the price level
A negative demand shock that causes an increase in output and an increase in the price level
A positive supply shock that causes a decrease in output and a decrease in the price level
A positive demand shock that causes a decrease in output and an increase in the price level
A negative demand shock that causes a decrease in output and a decrease in the price level

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Added by William B.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Andrew Davis

01/11/2023

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Step 1: A negative supply shock that causes an increase in output and an increase in the price level will not cause a recession in the economy, as an increase in output is generally associated with economic growth. Show more…

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Which of the following factors will cause a recession in an economy showing a long-run equilibrium? (2 points) A negative supply shock that causes an increase in output and an increase in the price level A negative demand shock that causes an increase in output and an increase in the price level A positive supply shock that causes a decrease in output and a decrease in the price level A positive demand shock that causes a decrease in output and an increase in the price level A negative demand shock that causes a decrease in output and a decrease in the price level

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Transcript

00:01 So the easiest way is to check all of these one by one, right? we simply need to sketch these things out.

00:07 So for the first one, let's draw a market, quantity and price.

00:13 We have demand and supply.

00:16 And in a, we have an increase in demand.

00:19 So here's my increase in demand.

00:21 And this means we're moving up this way.

00:23 So this means in general that the price is going to go up and the quantity is also going to go up.

00:30 Right? and so this one is wrong, right? because it says not price going down and quantity going up.

00:39 So it's not a.

00:41 B, we are thinking about an increase in supply.

00:45 So again, i'm going to sketch these markets.

00:47 Quantity and price, demand and supply.

00:52 Here we have an increase in supply, right? there's my increase in supply.

00:56 So we are moving down this way.

00:58 So this would predict that the.

01:00 Quantity is going to go up and the price is going to go down.

01:04 And the question is saying that the increase in supply is going to lead the price to go down and increase the quantity.

01:12 So this one looks right.

01:14 B is a very plausible answer.

01:16 But let's do the rest just to be totally sure.

01:20 C is a decrease in demand, right? so again, quantity, price, demand, supply.

01:29 We have a decrease in demand.

01:32 There's my decrease in demand.

01:34 So we are going from this equilibrium over to this equilibrium...

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