**Question 2: Positive Aggregate Demand Shock**Suppose that there is a positive aggregate demand shock. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray.**Graphs Explained:**- **a. AS curve shifts right:** - The Aggregate Supply (AS) curve, originally shown in blue, shifts rightward to the gray position. - The Aggregate Demand (AD) curve is shown in red and remains unchanged.- **b. AD curve shifts right:** - The Aggregate Demand (AD) curve, originally in blue, shifts rightward to the gray position. - The Aggregate Supply (AS) curve is shown in red and stays constant.- **c. AS curve shifts left:** - The Aggregate Supply (AS) curve, initially in blue, shifts leftward to the gray position. - The Aggregate Demand (AD) curve is shown in red and remains unchanged.- **d. AD curve shifts left:** - The Aggregate Demand (AD) curve, initially in blue, shifts leftward to the gray position. - The Aggregate Supply (AS) curve is shown in red and does not change. The correct graph for a positive aggregate demand shock would be **b**, where the AD curve shifts to the right.

Demand shocks are sudden events that increases or decreases demand for goods and services. A positive demand shock increases aggregate demand and shifts the aggregate demand curve to the right. In option b aggregate demand curve shifts to the right and so it is correct. Options a and c are wrong because it has shown shifts in aggregate supply curve. Option d is wrong because negative demand shocks shifts AD curve to the left. Therefore the correct choice is: b. AD curve shifts right.

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2. Suppose that there is a positive aggregate demand shock. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray. a. AS curve shifts right: b. AD curve shifts right: c. AS curve shifts left: d. AD curve shifts left:

2. Suppose that there is a positive aggregate demand shock. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray. a. AS curve shifts right: b. AD curve shifts right: c. AS curve shifts left: d. AD curve shifts left:

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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