Section 4 Activity – AD, SRAS, LRAS

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Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. a. Draw a graph of long-run equilibrium for Macroland depicting the AD, SRAS, and LRAS curves. Label both axes, and identify Yp and P1 on your graph.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. a. Draw a graph of long-run equilibrium for Macroland depicting the AD, SRAS, and LRAS curves. Label both axes, and identify Yp and P1 on your graph.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. b. Suppose that Macroland experiences a negative demand shock. Draw a new graph depicting the short-run changes in the original equilibrium that will occur because of this demand shock. On your graph, identify the new short-run equilibrium level of output Y2 and the new short-run equilibrium aggregate price level P2. Label any shifts in AD or AS clearly.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. b. Suppose that Macroland experiences a negative demand shock. Draw a new graph depicting the short-run changes in the original equilibrium that will occur because of this demand shock. On your graph, identify the new short-run equilibrium level of output Y2 and the new short-run equilibrium aggregate price level P2. Label any shifts in AD or AS clearly.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. c. Given the change in part (b), draw a third graph illustrating the long-run adjustment to the negative demand shock. Label any shifting curves clearly, and identify the new long-run equilibrium level of aggregate output Y3 and the new long-run aggregate price level P3.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. c. Given the change in part (b), draw a third graph illustrating the long-run adjustment to the negative demand shock. Label any shifting curves clearly, and identify the new long-run equilibrium level of aggregate output Y3 and the new long-run aggregate price level P3.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. d. Given the change in part (b), suppose the government wishes to engage in activist fiscal policy in order to restore the economy to its initial equilibrium. Provide two fiscal policies that would accomplish this.

Section 4 Activity – AD, SRAS, LRAS Mr. Weiss Section 4 Activity – AD, SRAS, LRAS 4. Macroland is a small, closed economy that is currently operating at the long-run equilibrium level of output. It is therefore producing Yp where Yp is potential output. Its aggregate price level is P1. d. Given the change in part (b), suppose the government wishes to engage in activist fiscal policy in order to restore the economy to its initial equilibrium. Provide two fiscal policies that would accomplish this. d. To offset a negative demand shock, the government needs to shift the AD curve to the right. Monetary policy that increases the money supply will shift the AD curve to the right and return the economy to P1 and Yp.