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Price Level LRAS (GDP Deflator 2005 = 100) SRAS SRAS 8 AD AD 0 Real GOP (2005 Billions USD) Suppose the economy is initially at point C
Price Level LRAS (GDP Deflator 2005 = 100) SRAS SRAS 8 AD AD 0 Real GOP (2005 Billions USD) Suppose the economy is initially at point C. If there is a decrease in aggregate demand, what is the final economy's equilibrium point in the long. run?
Expert Solution
Explanation to the answer :
The economy is initially at point C. If there is a decrease in aggregate demand, the final economy's equilibrium point in long run is A.
Due to decrease in aggregate demand, demand curve shifted to the curve. Long run aggregate supply curve being same, intersecting the Aggregate demand at point A, hence final equilibrium point in the economy will be at the point where aggregate demand and aggregate supply curve intersect each other.
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