For this problem, we want to practice working with the aggregate demand-aggregat

Question

For this problem, we want to practice working with the aggregate demand-aggregate supply model a. Set up a n aggregate demand-aggregate supply model in long-run equiltbrium, with both short-run and long-run aggregate supply curves and an aggregate demand curve. Label the equilbrium price level as P and the equilbrium level of real GDP asY. Draw this model twice. Graph a Graph b LRAS Price level LAta LRAS Price level P) SRAS SAAS, SRAS Real GDP TY) Real GDP (YO Using the first set of curves you drew in part (a), now assume that aggregate demand and aggregate supply (both short-run and long-run) decline. If all curves shift by the same amount, what is the resulting change in real GDP and the price level? What Is the implied change in the unemployment rate? The-estrtny(chomyc 6P and price leve l is, they The impic) chnn9c ,n unemployment wnd bet inco cas c. Now, using the second set of curves from part (a), let aggregate demand decline by a large amount while the aggregate supply curves decline by a relatively small amount. What are the resulting short-run changes in real GDP and the price level? What is the implied short-run change in the unemployment rate? d. Parts (b) and (c) describe the two different conditions of the Great Recession and the Great Depression. Which part refers to the Great Recession? Which part refers to the Great Depression?

Explanation / Answer

C. In the second graph we see due to policy change the demand curve shift rightward nd as a result its enough to prevent shift in supply. Output remains at natural rate . Gdp reduces.

D. Here part c is the case of great recession. As during recession demand curve shifts to the left due to some or the other effect say stock market crash, terriost attact etc ( which happened during the Great Recession. ) so (c) is great recession and (b) is great depression.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

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