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Economy experiences decrease in labor productivity

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Question

1. Draw a graph of an AD and an SRAS curve for the South African economy. Suppose that the economy is initially in a short-run equilibrium at Pe and that Real GDP is 25 billion $. Include this information to your graph.

2. Suppose that at some point this economy experiences a decrease in labor productivity, show how this will affect your graph.

3. Following the decrease in labor productivity, how will the price level and Real GDP be affected?

4. Now suppose that the economy experiences an increase in the interest rate, how will this affect your graph?

5. How will the increase in the interest rate affect the price level and Real GDP of this economy?

Reference no: EM133480653

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