Suppose the economy is starting from a situation of long-run equilibrium. In this case, we know that its equilibrium output (Y*) is its potential Next Question Q output (V) Intation Rate (percent) LRAS AS; Starting from its long-run equilibrium at point in the figure to the right, suppose the economy experiences a positive demand shock. 1) Using the line drawing tool, shift a single curve to show the initial short-run effect. Properly label your curve 2) Using the point drawing tool, identify the new short-run equilibrium. Label this point 2 Carefully follow the instructions above, and only draw the required objects. In the short-run equilibrium at point 2, labor markets would likely see increasing and corresponding stronger pressure on wages and costs that forces firms to raise their at a more rapid rate Graphically, this chain reaction produces shifts in the short-run aggregate supply curve that are These shifts in the short-run aggregate supply curve result in output gaps that and the economy is evolving toward an eventual new long run equilibrium with an inflation rate that is AD1 Aggregate Output (5) are