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

question 79

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. Then, the government increases its expenditure on goods and services. Draw the new aggregate demand and short-run aggregate supply curves in the figure to show the effects of this event 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 the short-run aggregate supply and aggregate demand?
e) What are the new long-run equilibrium real GDP and price level?

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Definitions:

Seniority Systems

Policies within organizations that determine the hierarchy, privileges, and benefits based on the length of service of employees.

Arbitrary Management

A style of management based on random decisions or personal whim, rather than any systematic planning or reasoning.

Whatever Means

"Whatever means" refers to the use of any available methods or strategies to achieve a specific goal, often without specifying the nature of the methods.

Worker Participation

The involvement of employees in decision-making processes within their workplace, often through mechanisms like staff meetings, suggestion boxes, and joint committees.