Please note I only need help with Part 4 and 5. I have answers for the other parts. Thank you so much for your time and effort!
Figure 2: Keynes’s AD-AS Model (Image normally goes here)
Part 1: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?
Part 2: The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings.
Please note the followong for the next 3 parts of this. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary.
Part 3:What happens in the immediate short-run when AD rises from AD to AD2 to the price level and output?
Part 4:What happens in the short-run when AD falls from AD to AD1 to the price level and output?
Part 5:What will happen in each case in the long-run?
Transcribed Image Text:### The Keynesian Aggregate Supply (AS) Curve
#### Description
This diagram illustrates the Keynesian Aggregate Supply (AS) curve and its relationship with Aggregate Demand (AD). The x-axis represents National Income (real GDP), while the y-axis represents the Price Level.
#### Explanation of Diagram
1. **AS Curve**:
- The AS curve is horizontal at lower levels of national income and becomes vertical at the full employment level of income, labeled as \( Y_f \).
2. **Aggregate Demand (AD) Curves**:
- There are three AD curves shown: AD, \( AD_1 \), and \( AD_2 \).
- As AD shifts from \( AD_1 \) to AD, and eventually to \( AD_2 \), the price level remains constant up to the full employment output level \( Y_f \).
3. **Equilibria**:
- At point \( e_1 \), AD intersects the horizontal AS curve, indicating that output can increase without any change in the price level.
- At point \( e \), the economy reaches the full employment level of income \( Y_f \).
- Beyond this point, as shown at \( e_2 \), increases in AD lead to a rise in the price level (from \( P \) to \( P_1 \)) but no further increase in real GDP, as indicated by the vertical portion of the AS curve.
#### Key Insight
- **Text Explanation**:
- Up to the real output level \( Y_f \), increases in AD have no effect on the price level.
- Increases in AD beyond \( Y_f \) cause an increase in the price level but no increase in real output.
This diagram demonstrates the Keynesian view that before reaching full employment, output can be increased without inflation, but once the economy is at full employment, further increases in demand only result in inflation.
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