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PRICEL 120 115 110 SRAS 105 LRAS 100 + 0 1 2 3 4 5 6 7 8 REAL GDP (Trillions of dollars) Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD2. As a classical economist from Fedoria, you explain that the shift in aggregate demand creates a recessionary gap You also explain that a will be affected in the short run. You note that such a gap leads to an unemployment rate that is greater than the natural unemployment rate. This means that wages are certain to fall▼ until Real GDP equals Natural Real GDP. Finally, you As wages change, the explain that in the long run, curve shifts to the will be affected. PRICE LEVEL 140 135 Changes in a Self-Regulating Economy 130 125 AD₂ AD1 120 115 110 SRAS 105 100 0 1 2 3 LRAS 5 16 7 B REAL GDP (Trillions of dollars)

PRICEL 120 115 110 SRAS 105 LRAS 100 + 0 1 2 3 4 5 6 7 8 REAL GDP (Trillions of dollars) Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD2. As a classical economist from Fedoria, you explain that the shift in aggregate demand creates a recessionary gap You also explain that a will be affected in the short run. You note that such a gap leads to an unemployment rate that is greater than the natural unemployment rate. This means that wages are certain to fall▼ until Real GDP equals Natural Real GDP. Finally, you As wages change, the explain that in the long run, curve shifts to the will be affected. PRICE LEVEL 140 135 Changes in a Self-Regulating Economy 130 125 AD₂ AD1 120 115 110 SRAS 105 100 0 1 2 3 LRAS 5 16 7 B REAL GDP (Trillions of dollars)

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Measuring A Nation's Income
Section15.4: Real Versus Nominal Gdp
Problem 4QQ
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PRICEL 120 115 110 SRAS 105 LRAS 100 + 0 1 2 3 4 5 6 7 8 REAL GDP (Trillions of dollars) Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD2. As a classical economist from Fedoria, you explain that the shift in aggregate demand creates a recessionary gap You also explain that a will be affected in the short run. You note that such a gap leads to an unemployment rate that is greater than the natural unemployment rate. This means that wages are certain to fall▼ until Real GDP equals Natural Real GDP. Finally, you As wages change, the explain that in the long run, curve shifts to the will be affected.
Transcribed Image Text:PRICEL 120 115 110 SRAS 105 LRAS 100 + 0 1 2 3 4 5 6 7 8 REAL GDP (Trillions of dollars) Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD2. As a classical economist from Fedoria, you explain that the shift in aggregate demand creates a recessionary gap You also explain that a will be affected in the short run. You note that such a gap leads to an unemployment rate that is greater than the natural unemployment rate. This means that wages are certain to fall▼ until Real GDP equals Natural Real GDP. Finally, you As wages change, the explain that in the long run, curve shifts to the will be affected.
PRICE LEVEL 140 135 Changes in a Self-Regulating Economy 130 125 AD₂ AD1 120 115 110 SRAS 105 100 0 1 2 3 LRAS 5 16 7 B REAL GDP (Trillions of dollars)
Transcribed Image Text:PRICE LEVEL 140 135 Changes in a Self-Regulating Economy 130 125 AD₂ AD1 120 115 110 SRAS 105 100 0 1 2 3 LRAS 5 16 7 B REAL GDP (Trillions of dollars)
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