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The economy ot Ashville is currently in a macroeconomic equilibrium, as depicted by point EO in the accompanying figure. The main component ot Ashville's
The economy ot Ashville is currently in a macroeconomic equilibrium, as depicted by point EO in the accompanying figure. The main component ot Ashville's exports consist of the raw materials that it derives trom its natural resources. Suppose that the world demand for raw materials increases sharply, resulting in an increase in the price ot raw materials throughout the world. The increase in the world demand tor raw materials, which is the major source ot Ashville's exports, will increase the level ot aggregate demand in Ashville, causing a rightward snift in the AD curve. The increase in the world demand tor raw materials, which implies an increase in the level ot factor prices, leads to an increase in the unit cost ot production in Ashville, causing a lettward snitt in the AS curve. Use the three-point curve drawing tool twice to draw and label new AS and AD curves that snows the ettect ot this shock on Ashville's economy. Caretu//y follow the ynstructyons above, and only draw the required object Economy ot Ashville so 1,20 2,000 4,000 6,000 8,000 10,000 Real GDP (Y) The overall ettect ot this snock on Ashville's equilibrium Y is ambiguous.
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