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Chapter 24: Q. 33 (page 602)

How is recession illustrated in an AD/AS model?

Short Answer

Expert verified

The recession makes a leftward shift of the AD curve.

Step by step solution

01

Definition

AD/AS Model illustrates the aggregate demand and aggregate supply of goods and services in an economy for the short-run and the long-run period.

02

Explanation

During a recession period, the economy's aggregate demand falls due to which equilibrium point changes. The aggregate demand falls below its potential GDP which means the AD curve shifts to the left due to which the economy faces loss.

03

Graph

As shown in Fig 1 during the recession the AD curve shifts leftward from AD to AD1

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Most popular questions from this chapter

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

How is the natural rate of unemployment illustrated in an AD/AS model?

Suppose, after five years of sluggish growth, the European Union's economy picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?

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During spring 2016the Midwestern United States, which has a large agricultural base, experiences above-average rainfall. Using the AD/AS diagram, what is the effect on output, the price level, and employment?
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