The graphs below illustrate an initial equilibrium for the economy. Suppose that

Question

The graphs below illustrate an initial equilibrium for the economy. Suppose that the stock market broadly increases Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS and long-run aggregate supply (LRAS) in both the short-run and the long-run, as wel as the short-run an long-run equilibria resulting from this change. Then answer what happens to the price level and real GDP (or aggregate output). Short-Run Graph Long-Run Graph LRAS LRAS SRAS RAS Short-Run Equlibrium- Long-Run Equilibriuro AD AD Real GDP Real GDP in the long-run, the price level stays the sme In the short-run, the price level decreases and GDP stays the same and GDP decreases

Explanation / Answer

If the stock Market increases then Money demanded increases and it will lead to money supply inrease and interest rate decreases and increases in price level because AD shifted Rightward.

In Short run- Prices increase and GDP increases

In Long Run- Prices increases and GDP stay the same at original position.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.