Question

For the question below, write an explanation of the short-run effect including the determinant of AD or AS that is causing the shift, the line that shifts (AD or AS), the direction of the shift (left or right), and the impact on output and price level (increase or decrease) and submit a properly drawn and labeled aggregate demand and aggregate supply graph for the scenario. Tourists flock to visit the major theme park's in Orlando, Florida.

Answer 1

Tourists flock to visit the major theme park's in Orlando, Florida.

Determinant of AD: Consumer confidence is the best determinant in this case. Tourists flock the theme parks because households not only have enough money to spend on recreation, but also feel that they will continue to have enough money to make ends meet in the near future, otherwise they would not go to the parks, and instead would save the money.

Direction of the shift: the AD curve shifts to the right, because AD is increasing, and the AD curve increases when it shifts to the right.

Impact on output and price level: Output increases because consumer confidence, and as a result, consumer demand, is boosting aggregate demand.

Price level also increases, because demand is pushing the price of a good that has a relatively inelastic supply (the theme parks). In other words, demand is rising more than supply, and this increases the price.