Use the AD AS model to predict the impact on the economy from the following scen

Question

Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity? a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower) d. The new equilibrium real GDP will be (higher or lower). e. The unemployment rate will be (higher or lower) Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity? a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower) d. The new equilibrium real GDP will be (higher or lower). e. The unemployment rate will be (higher or lower) Use the AD AS model to predict the impact on the economy from the following scenario: All firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. What is the immediate (short run, sloping AS) impact on the economy, assuming NO impact on productivity? a. The curve will shift (AD or AS) b. The curve will shift (left or right) c. The new equilibrium price level (GDP Deflator Index) will be (higher or lower) d. The new equilibrium real GDP will be (higher or lower). e. The unemployment rate will be (higher or lower)

Explanation / Answer

Ans. when firms decide that the new technology of smart phones is a necessity; consequently, firms purchase millions of smart phones to give to their employees. The immediate impact on the economy are as follows:

The Aggregate demand curve will shift rightwards and demand for products will increase by infusing technology. The new equilibrium price level ( GDP Deflator index) will be higher and the new equilibrium GDP will also be higher. The unemployment rate will be lower.

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