Consider the AD-AS model for a closed economy. If today’s income decreases, the AD curve will...

Consider the AD-AS model for a closed economy. If today’s income decreases, the AD curve will ; the SAS curve will ; and the LAS curve will . Note: For each of the above blanks, fill in one of the following three choices: A. move to the right; B. move to the left; C. stay where it was.

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Expert Solution

Decrease in income will decrease the demand for money which means rate of interest will be reduced. This will increase investment spending and it is likely that aggregate demand will be shifting to the right. in the short run there is no change in long run aggregate supply curve or short run aggregate supply curve. During the transition from short run to long and however, short run aggregate supply curve will be shifting to the left, restoring the original equilibrium

AD move to the right

SAS move to the left

LAS state where it was

Rahul Sunny answered 1 year ago

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