9. The Federal Reserve's response to an adverse supply shock The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves of an economy. Initially, the economy is producing at its full employment level indicated by point A, the intersection of AD and AS. Suppose that disruptions in world oil supplies lead to escalating energy prices, shifting the economy's aggregate supply curve leftward to AS₁. PRICE LEVEL E 【D F B ΣΤΑ 2 0 3 REAL GDP AS₁ ASO AD2 AD 0 AD1 (?) Suppose that the Federal Reserve (the Fed) decides to increase the money supply in response. The Fed's decision will lead to a the aggregate demand curve. The new macroeconomic equilibrium will be at point movement along Indicate whether each statemen ble is true or false according to the previous graph. shift of Statement False The price level will increase. There will be recession but no inflation. The economy will experience inflation. The economy will experience stagflation. О O

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?

Consider the figure to the right. Suppose that businesses in this nation initially had been i exporting significant amounts of domestically produced goods and services abroad Assume that other nations of the world have experienced a sudden decline in economic conditions. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain 1) Using the line drawing tool, draw a new AD curve that shows the effects of a sudden decline in economic conditions in other nations Label your line 'AD, 2) Using the point drawing tool. Indicate the economy's new short-run equilibrium price and level of real GDP Label this point E₂ Carefully follow the instructions above, and only draw the required objects In the short run, the equilibrium price level will and the nation will experience gap because the short-run equilibrium level of real GDP per year is real GDP at full employment 22 Price Level a LRAS Real GDP per Year…

9. Which of the following will shift the aggregate demand curve to the right, ceteris paribus? A) an increase in interest rates B) a decrease in disposable income C) a decrease in expected profits for firms D) an increase in net exports 10. If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve? A) This will move the economy up along a stationary aggregate demand curve. B) This will move the economy down along a stationary aggregate demand curve. C) This will shift the aggregate demand curve to the left. D) This will shift the aggregate demand curve to the right