Draw a basic AS/AD graph (with LRAS constant) showing the economy in long-run equilibrium. Assume that...

Draw a basic AS/AD graph (with LRAS constant) showing the economy in long-run equilibrium. Assume that there is a large decline in the housing sector. Show the resulting short-run equilibrium on your graph. What happens to (i) real GDP, (ii) the price level, and (iii) the unemployment rate? b. Draw a basic AS/AD graph (with LRAS constant) showing the economy in long-run equilibrium. Assume that there an increase in consumer optimism. Show the resulting short-run equilibrium on your graph. What happens to (i) real GDP, (ii) the price level, and (iii) the unemployment rate? Draw a basic AS/AD graph (with LRAS constant) showing the economy in long-run equilibrium. Assume that there an unexpected and significant increase in the price of oil. Show the resulting short-run equilibrium on your graph. What has happens to (i) real GDP, (ii) the price level, and (iii) the unemployment rate?

Expert Solution

a) Basic AS/AD graph (with LRAS constant) is drawn below where the economy is in long-run equilibrium. Assume that there is a large decline in the housing sector. This will reduce residential investment spending and so aggregate spending declines. AD shifts to the left. In the short run price level declines, Real GDP falls and unemployment rate rises.

b) Basic AS/AD graph (with LRAS constant) is drawn below where the economy is in long-run equilibrium. Assume that there an increase in consumer optimism. This will increase consumption spending and so aggregate spending increases. AD shifts to the right. In the short run price level rises, Real GDP rises and unemployment rate falls.

c) Basic AS/AD graph (with LRAS constant) is drawn below where the economy is in long-run equilibrium. Assume that there is an unexpected and significant increase in the price of oil. This will raise cost of production and so aggregate supply decreases. AS curve shifts to the left. In the short run price level rises, Real GDP falls and unemployment rate rises.

Rahul Sunny answered 1 year ago

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