Show the change, if any, from SRAS SRAS1 with an arrow indicating direction of change and explain why the change. Use short-run AD and AS analysis to illustrate the results of the following events. Then explain why ese changes have taken place. Each answer should be accompanied by a clearly labeled diagram. (A) There is a 25 percent decrease in the price of crude oil. SRAS SRAS, PRICE LEVEL AD REAL GDP (B) Price levels in Germanyand Great Britain considerably, while price levels in the United States remain unchanged . AD 1 AD SRAS PRICE LEVEL **Understanding Aggregate Demand and Aggregate Supply Analysis**In this section, we'll explore the effects of various economic events using short-run Aggregate Demand (AD) and Aggregate Supply (AS) analysis. Each scenario includes a detailed diagram to help visualize changes in the economy.**Scenario A: Decrease in Crude Oil Prices**The first diagram illustrates a 25% decrease in the price of crude oil. This event impacts the Short-Run Aggregate Supply (SRAS) curve.- **Diagram Interpretation:** - The vertical axis represents the price level. - The horizontal axis represents Real GDP. - Initially, the SRAS curve is labeled as SRAS₁. - A decrease in crude oil prices shifts the SRAS curve to the right, shown as SRAS₂.**Scenario B: International Price Level Changes**This scenario examines the impact of rising price levels in Germany, Japan, and Great Britain, while prices in the United States remain unchanged.- **Diagram Interpretation:** - The AD curve is initially labeled as AD and shifts to AD₁. - The SRAS curve remains in its initial position. - The shift in the AD curve indicates changes in international competitiveness affecting the U.S. economy.**Scenario C: Government Infrastructure Program**Here, the federal government initiates a significant highway construction program, influencing the economy.- **Diagram Interpretation:** - The AD curve starts as AD and shifts right to AD₁. - The SRAS curve remains constant. - The shift represents increased government spending boosting aggregate demand.These diagrams visually represent economic shifts and the interplay between price levels and real GDP.

Aggregate demand is defined as the total demand of all final commodities and services at a given time period in an economy. Whereas, the aggregate supply (AS) curve indicates the total real GDP or quantity of output that firms can manufacture and sell at any level of price.a. When there is a 25% fall in the price of crude oil than the production cost of the firms in the economy will fall because it is used as input in the production process. So, there will be a rise the aggregate supply in the economy due to which short-run aggregate supply will shift to the right which will lead to a fall in the price level in the economy and real GDP will increase. The diagram below shows this effect: In the diagram, it can be seen that the SRAS curve shifts to SRAS’ due to which the price level falls from P to P’ and real output shifts from Q to Q’. b. If the price level in Great Britain, Germany, and Japan rises and the price level in U.S remain unchanged than the aggregate demand in the U.S will rise because the U.S commodities and services will become relatively cheaper. So, the AD curve will shift to the rightward due to which the price level and real output both will rise in the U.S. It is illustrated by the diagram: In the diagram, it can be seen that the AD curve shifts to AD’ due to which the price level rises to P’ and real output rises to Q’. c. When Fed government launches a major highway construction program, the aggregate demand will shift to the right because the spending done by the government will rise. This will lead to a rise in the price level and real output in the economy. It is shows as: In the diagram, it can be seen that the AD curve shifts to AD’ due to which the price level rises to P’ and real output rises to Q’.