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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

If the economy is operating in the Keynesian zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?

What are the economic reasons why the AD curve slopes down?

What is Keynes’ law?

Table 24.4describes Santher's economy.

a. Plot the AD/AS curves and identify the equilibrium.

b. Would you expect unemployment in this

economy to be relatively high or low?

c. Would you expect prices to be a relatively large

or small concern for this economy?

d. Imagine that input prices fall and so AS shifts

to the right by 150units. Identify the new

equilibrium.

e. How will the shift in AS affect the original

output, price level, and employment?

The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?
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