5. In a fully labeled graph, illustrate the following scenario: If Greece leaves

Question

5. In a fully labeled graph, illustrate the following scenario:

If Greece leaves the Euro zone there will be macroeconomic consequences. The possible collapse of the Euro zone acts as a shock to sellers around the world worried about international economic stability. Show the short run impact of such an event. What happens to price levels, output and employment in the short run?

How could we return to long run equilibrium? You should identify a specific policy that will shift the economy back to the long run equilibrium. Which curve in your model is affected by your policy? What are the consequences of your policy in terms of output, employment and inflation?

Price levels (up, down, same) _______________________________

Output (up, down, same) _______________________________

Employment (up, down, same) _______________________________

POLICY:

Curve affected: __________________________________

Price levels (up, down, same) _______________________________

Output (up, down, same) _______________________________

Employment (up, down, same) _______________________________

Explanation / Answer

x.

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