/18/2017 11:55 PM 7.9/10 () 11/18/2017 11:38 PM Sapling Learning The graphs belo

Question

/18/2017 11:55 PM 7.9/10 () 11/18/2017 11:38 PM Sapling Learning The graphs below llustrate an intial equilbrium for the economy. Suppose that the slock market broadly aggregate demand (AD), short-un aggregate Use the graphs to show the new positions of and long-run aggregale supply (LRAS)in both the short-run and the long-run, as well as the shori-nun long-run equilibia resuting from this change. Then answer what happens to the price level and real GDP (or aggregabe output Short-Run Graph Long-Run Graph in the shont-nun the price levelIn the long-nun, the price and GOP and GDP stay 98 4

Explanation / Answer

If the stock market broadly increases and so investor and consumer confidence increases then the AD curve will shift rightwards in the short run and increase prices and quantity to a higher level. Thus in the short run the price level increases and the GDP increases. In the long run the economy moves back toward long run equilibrium. The prices will rise and GDP will remain the same as what it was before the stock market increase. So in the long run price level increases and GDP stays the same.

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