A. Tabassum Hand Out-Ch. 15 & 16 ECON 1500 Hand Out- Chapter 15 & 16 Question 1: Suppose the economy is initially in the long-run equilibrium in the real output market. a. Draw the initial long run equilibrium. Label the diagram clearly. b. Suppose that energy crisis increases the production cost and shifts the aggregate supply curve. Show the effect of this shock on your diagram in part a) and explain what happens in the short run? c. If the Bank of Canada undertakes expansionary monetary policy, can it return the economy back to its original long run level of output? d. When the economy returns to its long-run equilibrium level, what happens to prices and to the real output? How does this new long-run equilibrium compare with the initial long run equilibrium?