(Figure: Solow Growth and AD) Figure: Solow Growth and AD Uncertainty magnifies negative shocks. However, optimism or a positive outlook can also serve to magnify a positive shock. Using the Solow Growth and AD figure shown, suppose the economy is initially at Point a and that a positive technology shock shifts the Solow growth curve to 5 percent. a. Graphically depict the new point that the economy will go to. b. Now suppose that firms develop an optimistic outlook and decide to increase employment further. What might you expect will happen to the economy depicted?

Question

(Figure: Solow Growth and AD) Figure: Solow Growth and AD  Uncertainty magnifies negative shocks. However, optimism or a positive outlook can also serve to magnify a positive shock. Using the Solow Growth and AD figure shown, suppose the economy is initially at Point a and that a positive technology shock shifts the Solow growth curve to 5 percent. a. Graphically depict the new point that the economy will go to. b. Now suppose that firms develop an optimistic outlook and decide to increase employment further. What might you expect will happen to the economy depicted?

Quizplus · Accepted Answer

The Answer of (Figure: Solow Growth and AD) Figure: Solow Growth and AD  Uncertainty magnifies negative shocks. However, optimism or a positive outlook can also serve to magnify a positive shock. Using the Solow Growth and AD figure shown, suppose the economy is initially at Point a and that a positive technology shock shifts the Solow growth curve to 5 percent. a. Graphically depict the new point that the economy will go to. b. Now suppose that firms develop an optimistic outlook and decide to increase employment further. What might you expect will happen to the economy depicted?