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1)If the price of oil increases
1)If the price of oil increases. Will AD or AS shift? And what happens to price and output?
2)If income taxes increases. Will AD or AS shift? And what happens to price and output?
3)If Canada imports more than we export. Will AD or AS shift? And what happens to price and output? Where AD and AS refers to the Aggregate demand and aggregate Supply respectively.
Expert Solution
A. If oil price increase the there will be increases in shift AS, known as cost-push inflation, and supply shock. Given the AD curve, there will be increase in price and decrease in output.
B. When income tax increases there will be decline in the disposable income and hence consumption. Therefore aggregate demand will shift to left.hence price will decline and output will also declined.
C. In case of import exceed export means higher aggregate demand from foreign sector. Hence nothing will change in domestic AD and domestic AS. While price level of domestic market remain same.
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