View the step-by-step solution to:


AS-AD Model: Consider the short-run model of the economy and answer the following questions:

a. The key

difference between the long-run and short-run model is the assumption that prices are flexible. In the short-run prices are assumed to be fixed (or, at least, prices are expected not to fall). Why might prices be sticky downward?

b. The short-run aggregate supply curve is thought to be upward sloping (at least above the full employment level of output). Compare that to the long-aggregate supply curve and explain why the two might differ.

c. In the short-run model, it is generally assumed that price levels do not change. How then does the economy move to an equilibrium level of GDP?

d. Suppose that consumer wealth falls because the stock market takes a nose dive. If the economy begins at full employment, how does that affect GDP? Briefly describe the process and the outcome.

Top Answer

The explanations are... View the full answer

New Doc 2019-12-12 13.24.07_1.jpg

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question