Figure 2: Keynes's AD-AS Model The Keynesian AS curve Price Level Up to real output level Yf AS increases in AD have no effect on the price level. Increases in AD beyond Yf cause an increase in the price level but no increase in real output. p1 AD2 AD AD1 National income (real GDP) Copyright: www.economicsonline.co.uk

Figure 2: Keynes's AD-AS Model The Keynesian AS curve Price Level Up to real output level Yf AS increases in AD have no effect on the price level. Increases in AD beyond Yf cause an increase in the price level but no increase in real output. p1 AD2 AD AD1 National income (real GDP) Copyright: www.economicsonline.co.uk

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 8SCQ: Suppose Mexico, one of our largest trading partners and purchaser of a large quantity of our...

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Question

Changes in which factors could cause aggregate demand to shift from AD to AD1?

What could happen to the unemployment rate?

What could happen to the inflation rate?

Figure 2: Keynes's AD-AS Model
The Keynesian AS curve
Price
Level
Up to real output level Yf
AS
increases in AD have no effect
on the price level. Increases
in AD beyond Yf cause an
increase in the price level
but no increase in real output.
p1
AD2
AD
AD1
National income
(real GDP)
Copyright: www.economicsonline.co.uk

Definition Definition State in which an individual is without work, despite actively seeking employment opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed. Unemployment is one of the key indicators of the conditions prevailing in an economy. It is therefore considered a barometer that points out the condition of an economy.

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Student question Please Provide the answer for Question 3 and 4 G Font PO PIEL EO P2 3 R/GDPP/GDP R/GDP C Learning Activity 8 Consider the following AD-AS model for an economy and answer the following questions. F LRAS R/GDP AD2 ADI Paragraph SRAS ADO 4. What are factors that can shift LRAS to the right? Answer: Time Left: 00:09:34 1. Indicate the point where the above economy is in equilibrium in the short run and long run? Answer: 2. Explain the inflationary gap in the above graph and how the economy can recover itself from this output gap? Answer: 3. Explain recessionary gap in the above graph and what kind of fiscal policy can be used by a government to recover the economy from this output gap. Answer:
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