f a country is on the recovery phase of the business cycle where are they on...

f a country is on the recovery phase of the business cycle where are they on the ad as model.

Expert Solution

Recovery phase of a business model implies that the output slowly starts increasing in the economy following contraction and trough. It is considered to be in recovery till it reaches long run output. Expansion on the other continues till peak which maybe above potential output.

During recovery, the demand slowly starts picking up shifting the AD curve towards the right. The AS curve will not shift leftward due to increase in demand as during recession, there is high unemployment, therefore the price of input does not increase with increase in demand. The prices will increase along the SRAS curve until it reaches the long run output.

From the leftmost intersection (leftward of the vertical long run supply) of AD - AS curves, the intersection will keep on moving towards the right until the intersection between the AD and AS curves takes place on the vertical line depicting Long run output.

Rahul Sunny answered 1 year ago

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