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Draw the full AS-AD model. Assume we are at long run equilibrium. RGDP is 100 and...

Draw the full AS-AD model. Assume we are at long run equilibrium. RGDP is 100 and P is 10. Due to COVID investments decrease; people feel less confident in the market so they pull their money. Show me the shift, assume the change in RGDP is 20 and the change in price level is 3. Show the social loss to society, assume an equivalent change would have been needed to be socially optimal.

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Answer #1

Answer..

As earlier the equilibrium is at point L5 where AD = SRAS= LRAS but as people pull the money due to less confidence in market . There have been decrement in AD
Thus forming new equilibrium at point E1 and shaded region shows the social loss to society to decrease the social loss AD have to be increase with government spending and shift SRAS also to achieve equilibrium at output = 100 again

And attain the equilibrium point again at where AD=SRAS=LRAS

THANK YOU ❤️

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