Question

Quiz: Final Review - Bonus Marks This Question: 1 pt 1 of 41 It's a Recession—75 Percent of Americans Say Price level (GDP deflator, 2007=100) 140 LAS SAS. 130 In a telephone poll of over 1,000 adult Americans, 75 percent said they believe the nation is now in a recession. Of those who think the economy is in a recession, 27 percent said they believe we are in a serious recession Americans are less confident in the future of the economy than they were in March. The poll showed that 23 percent believe the downturn will last more than two years, up from 19 percent in March CNN, July 7, 2008 120- 110- The graph shows the economy when consumers experience a decrease in consumer confidence. Draw a curve that shows how the economy returns to a full-employment equilibrium with no intervention by the government or central bank. Label it. Draw a point at the new long-run macroeconomic equilibrium. 100- ADO The economy returns to a full-employment equilibrium as 90- O A. the money wage rate falls OB. the expected future inflation rate falls AD 13.0 9.0 10.0 110 12.0 14.0 15.0 Click the graph, choose a tool in the palette and follow the instructions to create your graph. Save for Later

Answer 1

Without govt intervention or the intervention of the central bank when AD falls price level of the economy will be lower and if the money wage rate of the economy also falls that will lead to have an outward shift of the agg supply curve as due to fall in money wage rate the supply will increase at any price level thus eventually the economy will achieve long run equilibrium but at a lower price level.

CRAS Price SAASO -SRAS 10 ADO 40 ADI 1 GDP 11 12 13 00 14 IS