For each of the following events, explain the short run and long run effects on output and the price level, assuming policymakers take no action.

a. The stock market declines sharply, reducing consumer's wealth.

b. The government increases spending on national defense.

c. A technological improvement raises productivity.

d. A recession overseas causes foreigners to buy fewer Philippine goods.

1. Explain whether each of the following events shifts the short run aggregate supply curve, the aggregate demand curve, both or neither. For each event that does shift a curve, draw a diagram to illustrate the effect on the economy.

a. Households decide to save a larger share of their income.

b. Baguio strawberries plantations suffer a prolonged period of below freezing temperatures.

c. Increased job opportunities overseas cause many people to leave the country.