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Assume that the economy of Sweden is operating at the full-employment equilibrium. A. Using a correctly labeled graph of aggregate demand, short-run aggregate supply, and
Assume that the economy of Sweden is operating at the full-employment equilibrium. A. Using a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, show the equilibrium, labeling the equilibrium price level as PL1 and the equilibrium output as Y1. B. Now assume that businesses in Sweden fear an upcoming recession and decrease their investment spending. On your graph from part (a), show the effect of the change in investment spending in Sweden in the short run. 1. Aggregate demand. Explain. Il. Real output and price level, labeled as Y2 and PL2. Ill. What kind of gap has been created? C. The central government of Sweden wishes to offset the effect of the drop in business confidence. What fiscal policy should the government of Sweden undertake
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