Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the

equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary

gap, stagflation). How should the situation be rectified in order to return to full employment?

Consumers expect a recession

Foreign income rises

Foreign price levels fall

Government spending increases

Workers expect high future inflation and negotiate higher prices now

Technological improvement increase productivity