2. Explaining short-run economic fluctuations variables and nominal economic var

Question

2. Explaining short-run economic fluctuations variables and nominal economic variables behave y of each other in the long run. For example, an increase in the money supply, a long-run effect on the quantity of goods and services the economy can produce, a variables is known as variable, to increase but will have no variable. The separation of real variables and nominal variable, will cause the price level, a In the short run, however, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. You will identify some of the missing labels in the questions that follow

Explanation / Answer

Increase in price level

Real income remain same

Inflation

Output

Demand

The first three cannot be easily written as options were not shown to me in the pic.

If money supply increases price level increases

Real income remains the same

Real income = Nominal income - Inflation.

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