Answer the following questions about AD, SAS, and LAS: a) What does the AD curve show?...

Answer the following questions about AD, SAS, and LAS:

a) What does the AD curve show? (Hint: What is true at every point along the AD curve?)

b) Does the SAS curve slope upward or downward? Why is it sloped that way? Explain.

c) Predict, with the aid of the IS-LM and the SAS-AD models, the short-run and long-run results when consumer optimism increases. Assume the economy is initially in long-run equilibrium at the natural real GDP.

** Make sure to:

-Explain why each curve shifts.

-Clearly label the starting equilibrium.

-Clearly label at least 2 short-run equilibrium points.

-Clearly label the final long-run equilibrium.

- Explain what happens to the interest rate, output, price level, nominal wage, real wage in the short-run?

-Explain what happens to the interest rate, output, price level, nominal wage, real wage in the long-run?

Expert Solution

Rahul Sunny answered 2 years ago

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