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 consumers' wealth. b. The federal government increases spending on national defense. c. A technological improvement raises productivity. d. A recession overseas causes foreigners to buy fewer U.S. goods.

Understanding the short-run and long-run effects on an economy is crucial for analyzing the impact of various events. In the short run, these effects are observable as immediate responses to an event, like a sharp decline in consumer wealth due to a stock market crash. This leads to a reduction in consumer spending and consequently, a decrease in aggregate demand, affecting output and prices.

However, the long-run effects can differ substantially as the economy tends towards self-correction. For example, decreased production costs due to lower wages can eventually lead to a gradual increase in supply, restoring output levels. It's important to note that the short-run is characterized by sticky prices and wages, while the long run assumes flexibility in these elements, allowing for full economic adjustment.

Economic growth refers to the increase in the quantity of goods and services produced in an economy over time. It's often measured as the percentage increase in real gross domestic product (GDP). Technological improvements that raise productivity, for instance, can lead to an increase in aggregate supply and boost potential output in the long run, contributing to sustained economic growth.

These enhancements in efficiency mean that the economy can continuously expand without immediate inflationary pressures. Economic growth is vital for improving living standards and providing funds for public investment without resorting to higher taxes or borrowing.

Productivity is the measure of output per unit of input and is a key driver of economic performance. When technological advancements occur, they often enhance the productivity of labor and capital. This leap in productivity can lead to a significant increase in the economy's aggregate supply, allowing for more goods and services to be produced with the same or fewer resources.

In the short run, this can lower production costs, leading to increased output and reduced prices. In the long run, continued improvements in productivity are essential for economic growth and can increase a country's standard of living.

Inflationary pressures arise when the aggregate demand in an economy exceeds aggregate supply, leading to a general rise in price levels. Short-run increases in government spending, such as on national defense, push up the aggregate demand. If the economy is near or at full capacity, this can trigger these pressures, resulting in higher prices.

In the long run, persistent inflationary pressures can lead to a wage-price spiral, affecting economic stability. Policymakers must balance between stimulating the economy and containing inflation to maintain economic health.

Government spending is a significant component of aggregate demand. When the federal government increases its spending, it injects money into the economy, usually causing a short-run boost in output and prices as businesses ramp up production to meet the new demand.

In the long run, however, unless matched by increases in aggregate supply, this can lead to inflationary pressures. Effective fiscal policy must consider the balance between stimulating economic activity and managing the government's budget over time to ensure sustainable growth and price stability.