-The Figure Above Shows the Initial Aggregate Demand Curve, AD₀

question 82

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 necessary 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:

Maslow

An American psychologist known for creating Maslow's hierarchy of needs, a theory of psychological health predicated on fulfilling innate human needs in priority, culminating in self-actualization.

Experimental Observations

Data and insights gathered from controlled experiments designed to test hypotheses and understand the causality in scientific research.

Correlational Research

A type of non-experimental research method that examines the relationship between two or more variables without manipulating them.

Horney

Karen Horney, a psychoanalytic psychologist known for her theory of neurotic needs and her disagreements with Freud's perspectives on women.