Imagine an economy is experiencing an inflationary gap. a. [1point] Give three examples of demand shocks...
Imagine an economy is experiencing an inflationary gap. a. [1point] Give three examples of demand shocks that might have led to it. b. [1point] Give three examples of supply shocks that might have caused to the inflationary gap.
Homework Answers
a) Increase in the income of the consumer, increase in the exports of the goods from the nation, and increase in the wealth of the consumer that has increased unexpectedly I.e. a positive expectation of the future income, rise in the stock prices etc.
b) A decrease in the wages, or decrease in the price of resources that are used as an input. change in the technology of the firms and increased population workforce.
All the factors given above will lead to a higher demand or supply creating a inflationary gap in the market.
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Imagine an economy is experiencing an inflationary gap. a.
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