Question 2: Suppose there is a recession in the economy that is caused by a sudden...

Question 2: Suppose there is a recession in the economy that is caused by a sudden change in aggregate demand. a) Show the recession on a graph. What will happen to the price level, output and unemployment? b) Assuming no government intervention, what will happen in the long-run? c) Now suppose the government decides to intervene. What can be done? Is there a trade-off decision in this case? If there is, explain. d) Let’s assume that the recession in the economy was caused by a temporary increase in oil prices which shifts the short-run aggregate supply to the left. What will happen to the price level, output and unemployment? e) Now suppose the government decides to intervene. Is there a trade-off decision in this case? If there is, explain.

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Rahul Sunny answered 4 weeks ago

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