The United Auto Workers Union wins an unexpectedly high wage increase in its new contract. Intel invents a new and more powerful computer chip. A severe hurricane damages factories along the east coast. 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, use a diagram to illustrate the effect on the economy.
Households decide to save a larger share of their income.
Florida orange groves suffer a prolonged period of below-freezing temperatures. The birthrate shoots up nine months after a severe winter blizzard. Suppose the economy is undergoing a recession because of a fall in aggregate demand. It leads to unconscionably high prices for basic necessities. Inflation makes it impossible for working people to afford many of the things they were hoping to buy.