Question

Suppose that​ initially, the economy is in​ long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the​ economy, the AD curve will shift from ▼ . The new​ short-run macroeconomic equilibrium occurs at ▼ point A point B point C . ​Long-run adjustment will shift the SRAS curve from ▼ SRAS 0 to SRAS 1 SRAS 1 to SRAS 0 as workers adjust to​ lower-than-expected prices. The new​ long-run macroeconomic equilibrium occurs at ▼ point A point B point C .

Answer 1

Answer:

a) In simple words, higher level of pessimism would result in lesser aggregate demand. Thus, AD will shift from point AD0 to the point AD1.  The fresh short time equilibrium is placed at point B (wherein AD1 is conneting to SRAS0).  Longer run accostoming will move SRAS curve from point SRAS0 to the pint SRAS1.  Hence, the New longer run equilibrium has been placed at point C.