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Shift in Curve

Decrease in AD from AD0 to AD1 will lead to a new short-run equilibrium with the price level at PSR & real GDP at GDP1 which is less than full-employment GDP (a recession)


From an initial state of long-run equilibrium at the intersection of AD0 with LAS, assume that aggregate demand increases to AD1. The new short-run equilibrium will be at over full employment  with real GDP at GDP1


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