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2) Use AD/AS and IS/LM to illustrate a) a supply side recession and b) a demand...

2) Use AD/AS and IS/LM to illustrate a) a supply side recession and b) a demand side recession.

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Answer #1

Supply side recession occurs when the supply shifts in from S1 to S2. Price rises but quantity falls.

As a result, LM curve shifts in. Interest rate rises and output falls.

Demand side reccesion occurs when the demand shifts in from D1 to D2. Both price and quantity at equilibrium fall.

As. result, IS curve shifts in. Interest rate and output fall.

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