Price Level LRAS (GDP Deflator 2005 = 100) SRAS SRAS 8 D AD AD 0 Real GDP (2005 Billion USD) Suppose the economy is at point C

The new short run equilibrium if the economy will be at point B and the longer run equilibrium will be at the point A.The point C shown in the figure is the initial long run equilibrium with the intersection of the long run aggregate supply curve and the aggregate demand Ad²Now the demand has reduced and shift to the left and this is shown as Ad¹ in the figure.Now as there is reduction in the aggregate demand the new short run equilibrium will be at point B.In the short there is no adjustment for the supply curve.The new short run equilibrium point B of the economy represents the intersection between the initial short run aggregate supply curve s¹ and the reduced aggregate demand curve d².Thus B is the short run equilibrium of the economy.In the long run the supply curve will shift from SRAs¹ to SRAS² and the new long run equilibrium is at point A.The short run equilibrium is at point B