ec-5 - We will look at some shocks to the short run economy...

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We will look at some shocks to the short run economy and how it will return to the long run level of output. For simplicity, we will first look at the aggregate supply and demand model in a setting where we do not have economic growth. I will call this the static AD/AS First some terminology Recessionary Gap is the difference between potential RGDP and the RGDP when the short-run equilibrium RGDP is less then potential GDP. Inflationary Gap is the difference between potential RGDP and RGDP when the short-run equilibrium RGDP is more than potential RGDP. 1
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1 ) Starting from potential GDP there is a negative spending shock . Price Level LAS SAS 0 AD 0 RGDP 2
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2 ) Starting from potential GDP there is a Positive spending shock . Price Level LAS SAS 0 AD 0 RGDP 3
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3 ) Starting from potential GDP there is a negative aggregate supply shock . Price Level LAS SAS 0 AD 0 RGDP 4
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) Starting from potential GDP there is a positive aggregate supply shock . Price Level
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ec-5 - We will look at some shocks to the short run economy...

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