Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 14, Problem 8WNG
To determine

Effect of aggregate demand in the movement of economy.

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A visual/graphic representation of how a decrease in consumer spending shifts the aggregate demand curve.
In order to break stagflation, the government has to increase expenditure on food subsidies in the form of food vouchers, unemployment benefits or allowances, wages subsidy to increase household consumption expenditure and boost up the AD. With increased consumption expenditure, aggregate demand will rise, which would send a signal to the aggregate supply (AS) to raise production.  This will create a positive effect, which will bring the economy out of recession. Show this in a graph.
Refer to the following figure to answer the following questions. Price level (P) F LRAS E ח A B D C SRAS3 AD₁ SRAS, SRAS₂ AD₂ Real GDP (Y) Based on the figure, If the economy starts at point A and ends up at point E, then in the short run, there was a(n) Increase in long-run aggregate supply. decrease in short-run aggregate supply. Increase in short-run aggregate supply.
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