The Figure Above Shows the Initial Aggregate Demand Curve, AD₀

question 100

Essay

The figure above shows the initial aggregate demand curve, AD₀, the initial short- run aggregate supply curve, SAS₀, and the long- run aggregate supply curve, LAS. The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium. The economy
is initially at point A. Atlantia's Central Bank then increases the quantity of money year after year. Draw the nece curves in the figure to show the effects of this on Atlantia's real GDP and price level.
a) What happens to Atlantia's potential GDP?
b) In the short run, what happens to aggregate supply and aggregate demand?
c) What are the new short- run equilibrium real GDP and price level?
d) In the long run, what happens to aggregate supply and aggregate demand?
e) In the long run, what process is unfolding?

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Definitions:

Panic Disorder

An anxiety disorder characterized by recurring severe panic attacks and the fear of a panic attack occurring.

Obsessive-Compulsive Disorder

A mental disorder characterized by recurrent, unwanted thoughts (obsessions) and repetitive behaviors (compulsions).

Obsessive-Compulsive Disorder

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Avoidance Learning

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