Question

Identify the combined shifts in long-run aggregate supply and aggregate demand that could explain the following simultaneous occurrences,

a. An increase in equilibrium real GDP and an increase in the equilibrium price level

b. A decrease in equilibrium real GDP with no change in the equilibrium price level

c. An increase in equilibrium real GDP with no change in the equilibrium price level

d. A decrease in equilibrium real GDP and a decrease in the equilibrium price level

Short answer

a. Rightward shift of aggregate demand curve should be quite the rightward shift of long-run aggregate supply curve.

b. Long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

c. Long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

d. Leftward shift of aggregate demand curve should be over the leftward shift of long-run aggregate supply curve.

Step-by-step solution

Rightward Shift (a)

(a) Arise in equilibrium real GDP and a rise within the equilibriumindicator is attained when both long run aggregate supply curve and aggregate demand curve shifts rightwards.
However, rightward shift of aggregate demand curve should bequite the rightward shift of long-run aggregate supply curve.

Leftward Shift (b)

(b) A decrease in equilibrium real GDP with no changewithin the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts leftwards in equal proportion.

Rightward shift (c)

(c) Arise in equilibrium real GDP with no change within the equilibriumindicant occurs when both long-run aggregate supply curve and aggregate demand curve shifts rightwards in equal proportion.

Leftward Shift (d)

(d) A decrease in equilibrium real GDP and a decreasewithin the equilibriumprice index is attained when both long-run aggregate supply curve and aggregate demand curve shifts leftwards.
However, leftward shift of aggregate demand curve should beover the leftward shift of long-run aggregate supply curve.