Price level of a negative demand shock

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Use the AD-AS graph to explain the short run and long run effects on real GDP and price level of a negative demand shock, such as a decrease in autonomous consumption. Use the self-correcting mechanism to explain what happens to bring the economy back to full employment (LRAS). Draw the AD-AS_LRAS graph, label the axis, and curves. Show all the shifts and explain in words, how the economy reacts to the shock and what happens in the long run to GDP and Prices.. (Similar to Figure 12, Ch 27-Aggregate Demand Aggregate Supply).

Reference no: EM131387162

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