Question
Use the AS/AD/LRAS model to answer the questions below. Assume the economy starts in an equilibrium where actual output equals potential output, and show the
Use the AS/AD/LRAS model to answer the questions below. Assume the economy starts in an equilibrium where actual output equals potential output, and show the appropriate shifts in the AS and/or AD curves. Suppose a summer of great weather in western Canada leads to record harvest of various agriculture crops like Wheat and Barley. A. What happens to price levels and output in the short run. B. Suppose the government takes no action to help the economy. What happens to price levels and output in the long run? Explain. Draw a fully labeled graph to show your answer. C. Suppose, instead, the government decides to take action to help the economy. What actions(s) would be most appropriate? Explain. D. If the government makes the appropriate policy response, what happens to price and output in the long run. Draw a new fully labeled graph to show your answer
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