Assume that aggregate supply meets aggregate demand in the upward sloping portion of the AS curve. For each of the following, graph the change in aggregate supply and/or aggregate demand, and explain the effect on prices and output.
a) The demand for exports increases. (1.5 marks)
b) Taxes increase. (1.5 marks)
c) Businesses become less optimistic about the future. (1.5 marks)
d) The labor force increases. (1.5 marks)
e) Costs of production increase. (1.5 marks)
Sample Solution