The graph shows a downward sloping aggregate demand (AD) curve and an upward sloping aggregate supply (AS) curve. In the current situation, where the economy is in a recessionary phase and facing a supply shock, the AD curve will shift leftwards and the AS curve will shift leftwards, resulting in a decrease in the equilibrium level of output and an increase in the equilibrium price level.
make a graph of the above explanation
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Answer 1
A downward-sloping aggregate demand (AD) curve and an upward-sloping aggregate supply (AS) curve are depicted in the graph.
Whet is the graph about?The AD curve will shift left and the AS curve will shift left in the current scenario, where the economy is experiencing a supply shock and is in a recessionary phase. As a result, the equilibrium level of output will decline and the equilibrium price level will rise.
As the components of aggregate demand—consumption spending, investment spending, government spending, and spending on exports minus imports—increase, the aggregate demand curve, or AD curve, moves to the right. With the decline of these components, the AD curve will turn back to the left.
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