In each of the following cases, in the short run, determine whether the events cause a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. a) As a result of new discoveries of iron ore used to make steel, producers now pay less for steel, a major commodity and used in production. b) An increase in the money supply by the Federal Reserve increases the quantity of money that people wish to lend, lowering interest rates. c) Greater union activity leads to higher nominal wages. d) A fall in the aggregate price level increases the purchasing power of households' and firms' money holdings. As a result, they borrow less and lend more.

Please refer to Explanation

Explanation:

a) Due to the laws of supply and demand, new discoveries of Iron ore that have been discovered had the impact of reducing the price of Iron Ore. Iron Ore is a major component of Steel so it means Steel becomes cheaper to make. As a result of this, more steel will be produced. This would shift the short run AGGREGATE SUPPLY curve to the RIGHT.

b) The actions of the FED will result in the Short run AGGREGATE DEMAND CURVE shifting to the right. This is because interest rates are lower so people and businesses will borrow more for consumption and investment. Hence increasing Aggregate Demand.

c) Higher nominal wages will have to effect of increasing the labour cost for suppliers and producers. This would mean that input costs for Production will increase. This will have the impact of SHIFTING the short run AGGREGATE SUPPLY curve to the LEFT because the suppliers will supply less as it would be more expensive to produce more.

d) The AGGREGATE DEMAND CURVE is plotted against price. If prices drop, there will be a DOWNWARD movement ALONG the shortrun Aggregate Supply Curve as will buy more and invest more. I included a graph to demonstrate this.

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