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Aggregate Demand-Aggregate Supply Model (20%) e. Currently the economy is at potential. Draw the aggregate demand (AD), short-run aggregate supply (SAS) and long-run aggregate supply
Aggregate Demand-Aggregate Supply Model (20%) e. Currently the economy is at potential. Draw the aggregate demand (AD), short-run aggregate supply (SAS) and long-run aggregate supply (LAS). (10%) Which curve will shift if there is a substantial increase in the price of oil and what happens to equilibrium? Is there any recessionary or inflationary gap? f. Currently the economy is far below potential and the resources are underutilized. Draw the aggregate demand (AD), short-run aggregate supply (SAS) and long-run aggregate supply (LAS). (10%) Classical economists would argue that the government should not intervene. Show by shifting one (or more) of the curves that the economy is going to return to its potential, using the arguments of supply- side economics or the long-run view of economics
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