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Fill in the blanks to make the following statements correct:(options are in the brackets) Beginning with...

Fill in the blanks to make the following statements correct:(options are in the brackets) Beginning with output equal to potential, suppose there is a drop in business confidence and investment falls. This is a____ (supply/demand) shock to the Canadian economy, which shifts the__ (AD/AS) curve to the___ (right/left) and creates ____ (a recessionary/ an inflationary) gap. Units costs will start to___(rise/fall) and the__ (AD/AS) curve will shift ____ (rightward/leftward) . Long-run equilibrium will (slowly) be restored at ___ (actual/potential)output and a ____ (higher/lower)price level

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This is a__demand__ (supply/demand) shock to the Canadian economy, which shifts the_AD_ (AD/AS) curve to the_left__ (right/left) and creates __recessionary__ (a recessionary/ an inflationary) gap. Units costs will start to_fall__(rise/fall) and the_AS_ (AD/AS) curve will shift _rightward___ (rightward/leftward) . Long-run equilibrium will (slowly) be restored at _potential__ (actual/potential)output and a _lower___ (higher/lower)price level.

(As investment falls then demand decreases so it is a demand shock which shift AD curve leftward creating a recessionary gap. So, unit costs will start to fall as price will decrease and cost of production will decrease so supply will increase shifting AS rightward. Thus, long run equilibrium will be restored at potential output and a lower price level.)

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