\f11:38 pm Tue 20 Sep . . . 65% 00:48

11:38 pm Tue 20 sep 0 650/0 00:48 TODOU AD/AS and the multiplier worksheet 1. New Classical/Monetarist ADIAS scenarios => for each of those headlines, show the short-run equilibrium and the corresponding move to the long-run equilibrium. 1 Scenario Illustrated example: Consumers and businesses are pessimistic about the future of the economy Graph Average Prize Level APL, APL SR I Lp--.s SR = Short-run Real GDP Analysis Initially, economy is at equilibrium at a real GDP of Y(fe), and an average price level of APL. In the short run, since consumer confidence and business confidence are both low, this will cause a decrease in AD and curve shifts to the left to ADI . This will cause a fall in the average price level to APLI, and a fall in real GDP to Yl (a recessionary gap of Yfe - Y 1). In the long run, due to the recession, workers will accept lower wages and this causes a decrease in costs of production across the economy, which causes an increase in SRAS (curve shifts to the right to SRAS2). This will lower the average price level even further to APL2 and bring the economy back to its full-employment level of output (Yfe) 1 7