Macroeconomics

1. There is a decrease in AD. Show on one ADKAS diagram the effect on output and prices in both the short-run and the long-run. Mark the starting price and output Pt and ON. Mark the price and output at the end of the short-run P2 and Q2. Mark the price and output at the end of the long-run P3 and Q3. Be sure to label all the lines on your diagram, and if a line shifts, mark the order of the shifts with subscript numbers after the symbols (for example ADI shifts to become ADz). Next to the diagram, state the effect on prices, output, unemployment, and wages in both the short-run and long-run. Assume we start at QN. 2. There is a decrease in the cost of an input into the production of many goods. Show on one AD/AS diagram the effect on output and prices in both the shortrun and the long-run. Mark the starting price and output P] and QN. Mark the price and output at the end of the short-run P2 and 01. Mark the price and output at the end of the long- run P3 and Q3. Be sure to label all the lines on your diagram, and if a line shifts, mark the order of the shifts with subscript numbers after the symbols (for example, ADI shifts to AD:). Next to the diagram, state the effect on prices, output, unemployment, and wages in both the short-run and long-run. Assume we start at QN