Aggregate Demand and Aggregate Supply Method 1) Starting Position will be given 2) Shock Demand or Supply 3) Positive or Negative Shift of Demand or Supply 4) Ouput gap i it recessionary or inflationary 5) Demonstrate and explain effects of initial shock on GDP and Price level www.w 6) In the long run, without policy Demonstrate and explain the market response and why. what will happen to GDP and Price Level 1. Assume the economy is in a recession with below average price level. If consumers think the economy will get worse and they decrease spending what will happen in the short and long run. 2. If the economy is in an inflationary gap period with below average price level, what happens in the short and long run if the government increases regulation on the energy sector. 3. If the economy is in a period of stagflation, what happens if the government increases taxes in the long run and short run?

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