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Use the Model of Dynamic Aggregate Demand and Aggregate Supply

question 50

Essay

Use the model of dynamic aggregate demand and aggregate supply to graphically illustrate the impact on output and inflation of an exceptional weather pattern that results in a one-period glut of food worldwide that reduces food prices (a one-period negative supply shock) when the economy is initially at long-run equilibrium. Explain the time path of output and inflation in words.


Definitions:

Collapse

The sudden failure or loss of strength leading to a fall or the falling in of something, such as a structure.

Orthopnea

Difficulty in breathing that is relieved by sitting or standing in an upright position, commonly associated with heart and lung diseases.

Orth/o

A prefix meaning straight, correct, or right, used in medical and technical terms.

Pleurisy

An inflammation of the pleura, the membrane surrounding the lungs, which can cause sharp chest pain with breathing.

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