Question:

Aggregate demand/ aggregate supply model?

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1. explain the following circumstance and how the graph will shift: recession deepens while the rate of inflation deepens.

2. explain the following circumstance and how the graph will shift: the rate of inflation diminishes, but the unemployment rate rises.

ive been looking at these two problems for over an hr!! i dont know what but i just cant get. if i think i have the answer in a sec i see something wrong with my answer. please end my suffering:(

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2 ANSWERS


  1. 1. demand decreases/ supply increases

        

    2. demand increases/ supply decreases

    im not sure if i'm right. see if my answers make sense to you.


  2. 1: AS falls (shifts left) faster (and at increasing rate) than AD thus we have both, unemployment and inflation (if inflation deepens means increase in inflation).

    2: AS falls (shifts leftward) still faster than AD but at decreasing rate - thus inflation in dynamics will slow down and at the same time unemployment arise.

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