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Question #1: Introduction to Economics Fluctuations Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves. Assume that the economy is

Question #1: Introduction to Economics Fluctuations Using aggregate demand (AD), short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves. Assume that the economy is initially in long run equilibrium at the potential output level and prices are fixed in the short-run. In your graph, label "A" for the initial equilibrium, "B' for the short-run equilibrium, and "C" for the long-run equilibrium. 1) Graphically illustrate the effect of a negative supply shock on output and prices in the short and long run. 2) Graphically illustrate the effect of a new discovery of vast oil reserves off the Atlantic Coast on output and prices in the short and long run.

3) Graphically illustrate the effect of a decrease in money supply on output and prices in the short and long run. 4) Graphically illustrate the effect of increasing in consumption on output and prices in the short and long run.

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