Question

The economy of Southland is currently in a macroeconomic equilibrium depicted by point on the graph to the Suppose that the level of investment expenditures increases by 5500 and the multiplier is 2. The multiplier is ent from the simple multiplier, which assumes a horizontal AS curve d 1. Use the three-point curve drawing tool to draw and label a new AD curve that shows this AD shock Use the multipler ol 2 10 calculate the exact location of the new AD curve 2) Use the point pothing tool to plot and label the new equilibrium point, following the change in the autonomous investment expenditures Carefully follow the instructions above, and only draw the required Object Price La Roal GOPY

Answer 1

BRASI pb @ SRAS M ☺ ☺ ☺ when the Economy is initially at Equilibrium we have the point as A. At this point the Economy is at full Employment. Now with a negative Supply shock this will cause the shost run aggregate supply cusue to shift leftwards and so this causes a rise en peice and fall in quantity. Quantity falls to Yg and price rises to Pg to the new equilibrium at B. Scanned with CamScanner

Over time the prices will adjust themselves and the Economy gradually moves back to the Original equilibrium at A. In the keynesian set up, the prices will be stickly downwards and so the adjustment process will be slow in the long to term. cs Scanned with CamScanner