How is the economy being improved?

Consider an economy starting from the long-run equilibrium denoted as point A. You can show only on Show more Consider an economy starting from the long-run equilibrium denoted as point A. You can show only one diagram to support your answers. a. Draw an aggregate demand and aggregate supply (AD-AS) diagram to show that the economy is in the long-run equilibrium. (Please label them clearly) b. If the strong showing in the real estate market raises confidence that firms expected profits would be increased how does this situation affect the AD-AS diagram? What will happen to the equilibrium price level and real GDP in the short run? Explain your answer. (Please write the new equilibrium point as the point B) c. From question (b) is the economy experiencing an inflationary gap or a recessionary gap? Is it called the demand-pull inflation or cost-push inflation? d. From question (b) assume that neither the Fed nor the government imposes any policies to simulate the economy. According to the concept of self-correction in the long run what will happen in the economy? How is the economy being improved? Explain it in words and graphically using AD-AS diagram? e. From question (b) during the toughtimes how can the Fed do to overcome the problems faced by the economy using money market diagram and AD-AS diagram? f. From question (b) how does government use fiscal policy to maintain full employment using AE model and AD-AS diagram? Show less

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