How do the following affect the equilibrium price in a market? ...

[newyorker26]

How do the following affect the equilibrium price in a market?
 
  a. A leftward shift in demand
  b. A rightward shift in supply
  c. A large rightward shift in demand and a small rightward shift in supply
  d. A large leftward shift in supply and a small leftward shift in demand

Question 2

In the Taylor rule, does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a
 
  difference in how the target for the federal funds rate changes.

[gstein359]

Answer to Question 1

a. Everything else remaining unchanged, a leftward shift in demand will lower the equilibrium price in the market.
b. Everything else remaining unchanged, a rightward shift in supply will lower the equilibrium price in the market.
c. Both the demand and supply curves will shift to the right but the shift in the demand curve will be greater. This means that that equilibrium price is likely to increase.
d. Both the demand and supply curves will shift to the left but the shift in the supply curve is greater than the shift in the demand curve. This means that the equilibrium price is likely to increase.

Answer to Question 2

The target for the federal funds rate responds differently. The output gap is negative with both recessions, but the current inflation rate and the inflation gap differ. The decrease in short-run aggregate supply will increase current inflation and the inflation gap (current inflation rate minus the target inflation rate). The decrease in aggregate demand will decrease both current inflation and the inflation gap. The target for the federal funds rate will be higher for the recession caused by a decrease in short-run aggregate supply.

[newyorker26]

Thank you

[gstein359]

Happy to help you