Question

2A. Using a Macro Model, depict changes to an economy that is experiencing economic growth due...

2A. Using a Macro Model, depict changes to an economy that is experiencing economic growth due to an increase in Aggregate Demand and an increase in Aggregate Supply.

2B. Using a Macro Model, depict changes to an economy that is experiencing a decline in real GDP due to a decrease in Aggregate Demand, but no change in the productive capacity of the economy.

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Answer #1

A) Assume economy starts from point A. Rise in aggregate demand from D to D1 and aggregate supply rise from S to S1 will shift economy from point A to C where price will be same as initial level at P and output rises from Q to Q2.  

B) Assume economy start from point A where aggregate demand reduces from AD to AD1 and no change in productive capacity which cause no change in aggregate supply. There will be fall in price level from P to P1 and output level fall from Y to Y1.

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