General Instructions

1.Pay attention to the different labels used in the charts. If you see an AD-AS graph, that means you are to describe what happens in the US economy as a whole, or in the aggregate market, the market of ALL goods and services in the US. Unless noted otherwise, you are to describe both the short-run and long-run impacts.

2.On the other hand, if you see the regular S and D model, you are to describe the impact on a specific commodity market. In this case, you are applying the microeconomic theory we discussed early in the semester.

3.In each question, assume other things constant and that each of the event introduced is unanticipated.

4.Explain your answers fully! For instance, if you argue that AD increases, explain which components of the GDP that drives the increase in GDP, and why.

Question: The chart below represents the initial equilibrium of the US aggregate market. Suppose a US trade partner, Canada, suffers a recession. Describe the short-run impact of Canada's recession on the US economy. If you were a US president, name one fiscal policy you'd introduce to help mitigate any negative impact of the Canada's recession on the US economy. Describe what happens to the US economy after your fiscal policy is enacted & find the long-run equilibrium. Assume all shocks are unanticipated, and other things are constant.

Market of All Goods and Services, US Price Index LRAS SRAS 1 P1 ............... AD1 YF Real GDP