3. Suppose an economy is initially in a long-run equilibrium in an AD-AS diagram. After the economy has experienced a period of inflation, consumers find ways to decrease their consumption spending. a. Explain how the decrease in consumer spending affects the AD curve. How does this affect the economy's short-run equilibrium? (graph is required) b. In addition to (a) above, suppose the economy experiences an unfavorable inflation shock; how does this affect the AS curve? (Add an appropriate line to your graph in part (a) above).

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21-07-2024
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3. Suppose an economy is initially in a long-run equilibrium in an AD-AS diagram. After the economy has experienced a period of inflation, consumers find ways to decrease their consumption spending. a. Explain how the decrease in consumer spending affects the AD curve. How does this affect the economy's short-run equilibrium? (graph is required) b. In addition to (a) above, suppose the economy experiences an unfavorable inflation shock; how does this affect the AS curve? (Add an appropriate line to your graph in part (a) above).

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