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ECO - 252 -- Macroeconomics 2. For each event a, b, and c below, use the AD-AS Model to answer the following 5 questions (in that exact order). Be...

ECO - 252 -- Macroeconomics


2. For each event a, b, and c below, use the AD-AS Model to answer the following 5 questions (in that exact order). Be neat! Do not clump all your answers together. If your answers are difficult to follow because of a messy layout, you will lose points even if your answers are correct.


1) Which curve in the AD-AS model shifts?

2) What is the direction of the shift (left or right)?

3) What are the short-run effects on output, the price level, and unemployment?

4) How will the economy get back to its long-run equilibrium if policy makers take no action? Be thorough!

5) What are the long-run effects on output and the price level?


a. Households decide to save a larger share of their income and to spend less on current consumption.

b. Crops suffer from a prolonged bad weather that promotes the spread of parasites on fruits and vegetables.

c. Europe experiences a huge economic boom.

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