Give an example of an event or incident that has taken place in the U.S economy

Question

Give an example of an event or incident that has taken place in the U.S economy which has a major economic impact be specific, e.g.  9/11 attack, natural disaster, rise or fall in oil prices and so forth.

What effect would this event have on AD or AS other things being constant?

What would be the resulting efffect of equilibrum price level?

Explain.  What will be the effect of the different tools of fiscal policy to stabilize the economy?

Give examples of a built in stabilizer and explain how it would work to reduce this rise or in the level of AD

Explanation / Answer

When Hurricane Rita hit Houston, it shut down a lot of oil refineries. This shifted aggregate supply to the left, increasing the price level and decreasing GDP. In order to stabilize GDP, the government would lower taxes, which would increase aggregate demand, prices and GDP. In order to stabilize prices, the government would increase taxes, which would decrease aggregate demand, prices, and GDP.

Alternatively, the government could decrease taxes on input goods, which would increase aggregate supply, increase GDP, and decrease prices. This would stabilize prices and GDP.

A built-in stabilizer is something that automatically offsets an exogenous shock. So, for example, when the price of oil increases as a result of Katrina, that will increase the demand for Ethanol and other substitutes to oil. This increase in demand will partially offset the decrease in GDP caused by Katrina.

The higher-education industry is on the verge of such a transformative re-alignment. Many Americans agree that a four-year degree is vastly overpriced

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