Question
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer.
#1
The economy of IVAland is at full employment.
(a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following.
(i) Current price level, labeledPL1
(ii) Current real output, labeledY1
(b) Assume that consumer confidence decreases as a result of a recession caused by the cryptocurrency bubble bursting in IVALand. On your graph in part (a), show the effect of the decrease in consumer confidence on real output and price level.
(c) What will be the effect of the change identified in part (b) on unemployment in IVALand?
(d) Will the change in real output shown in part (b) be smaller or larger in the presence of automatic stabilizers? Explain.
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