-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:

Behavioral Techniques

Methods or interventions used to modify human behaviors, often utilized in psychology and behavioral therapy.

Cognitive Processes

Mental actions or operations that involve thinking, reasoning, problem-solving, and memory.

Educational Methods

Various techniques, strategies, and approaches used in education to facilitate learning and teaching.

Behavioral Approaches

Methods or interventions based on the principle that behavior is learned and can therefore be unlearned or modified through therapy or changes in environmental conditions.