Answer to Question #46212 in Macroeconomics for jay

Question

Explain how each of the following occurrences will impact on the macroeconomic equilibruim (i.e level of output and the price level),using the AD-AS model:

a)A depreciation of the rand.
b)A sudden fall in the value of shares trade on the stock exchange.
c)An unexpected increase in the interest rate as happened in June 2012.
d)An increase in workers' wages (consider the supply and demand sides).
e)The government implements a Skills Development Levy,payable by businesses.

Answer 1

a)A depreciation of the rand will decrease AS, so the equilibrium price will increase, equilibrium GDP will decrease.
b)A sudden fall in the value of shares trade on the stock exchange will decrease AS, so the equilibrium price will increase, equilibrium GDP will decrease.
c)An unexpected increase in the interest rate as happened in June 2012 will decrease AD, so the equilibrium price will decrease, equilibrium GDP will decrease.
d)An increase in workers' wages (consider the supply and demand sides) will increase AD, so the equilibrium price will increase, equilibrium GDP will increase.
e)The government implements a Skills Development Levy, payable by businesses, that will decrease AS, so the equilibrium price will increase, equilibrium GDP will decrease.