Explanation

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The AS/AD Model is a key macroeconomic graph that gives economists information on the business cycle, inflation, and unemployment.

In this space, an explanation of the desired shift will appear.

The economy is in a long-run equilibrium

The aggregate demand curve shows the amount of real GDP purchased at every price level. As consumers increase spending, the real GDP of the economy will increase at every price level.

There will be an inflationary gap as the real GDP is greater than full employment.

Due to the inflationary gap in the short run, workers will start asking for a raise in response. The increase in input prices will decrease the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. As consumers decrease spending, the real GDP of the economy will decrease at every price level.

There will be a recessionary gap as the real GDP is less than full employment.

Due to the recessionary gap in the short run, workers will start getting laid off in response. The decrease in input prices will increase the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. As people increase investments, the real GDP of the economy will increase at every price level.

There will be an inflationary gap as the real GDP is greater than full employment.

Due to the inflationary gap in the short run, workers will start asking for a raise in response. The increase in input prices will decrease the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. As people decrease investments, the real GDP of the economy will decrease at every price level.

There will be a recessionary gap as the real GDP is less than full employment.

Due to the recessionary gap in the short run, workers will start getting laid off in response. The decrease in input prices will increase the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. As the government increases spending, the real GDP of the economy will increase at every price level.

There will be an inflationary gap as the real GDP is greater than full employment.

Due to the inflationary gap in the short run, workers will start asking for a raise in response. The increase in input prices will decrease the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. As the government decreases spending, the real GDP of the economy will decrease at every price level.

There will be a recessionary gap as the real GDP is less than full employment.

Due to the recessionary gap in the short run, workers will start getting laid off in response. The decrease in input prices will increase the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. Net exports are a country’s exports minus their imports, so an increase in net exports can be done by either an increase in exports or a decrease in imports. Either way, this would increase the real GDP of the economy at every price level because more money is entering the country.

There will be an inflationary gap as the real GDP is greater than full employment.

Due to the inflationary gap in the short run, workers will start asking for a raise in response. The increase in input prices will decrease the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

The aggregate demand curve shows the amount of real GDP purchased at every price level. Net exports are a country’s exports minus their imports, so a decrease in net exports can be done by either a decrease in exports or an increase in imports. Either way, this would decrease the real GDP of the economy at every price level because more money is leaving the country.

There will be a recessionary gap as the real GDP is less than full employment.

Due to the recessionary gap in the short run, workers will start getting laid off in response. The decrease in input prices will increase the short-run aggregate supply until it reaches the full employment output. This is the result of a self-adjustment.

An increase in input prices will decrease short-run aggregate supply. A higher price for inputs will discourage production because it will reduce the possibilities for earning profits.

There will be a recessionary gap as the real GDP is less than full employment.

In response to the recessionary gap, the government will increase spending to increase the aggregate demand back to the full employment level.

A decrease in input prices will increase short-run aggregate supply. A lower price for inputs will encourage production because it will increase the possibilities for earning profits.

There will be an inflationary gap as the real GDP is greater than full employment.

In response to the inflationary gap, the government will decrease spending to decrease the aggregate demand back to the full employment level.

An increase in productivity will increase short-run aggregate supply because producers will be able to increase production.

There will be an inflationary gap as the real GDP is greater than full employment.

In response to the inflationary gap, the government will decrease spending to decrease the aggregate demand back to the full employment level.

A decrease in productivity will decrease short-run aggregate supply because producers won’t be able to produce as much

There will be a recessionary gap as the real GDP is less than full employment.

In response to the recessionary gap, the government will increase spending to increase the aggregate demand back to the full employment level.

If the government were to subsidize production, this would increase the short-run aggregate supply curve, and there would be an increase in real GDP per price level.

There will be an inflationary gap as the real GDP is greater than full employment.

In response to the inflationary gap, the government will decrease spending to decrease the aggregate demand back to the full employment level.

If production isn’t subsidized, producers will produce less, which will decrease the short-run aggregate supply curve.

There will be a recessionary gap as the real GDP is less than full employment.

In response to the recessionary gap, the government will increase spending to increase the aggregate demand back to the full employment level.

If businesses are more regulated, production will slow down and the short-run aggregate supply curve will decrease.

There will be a recessionary gap as the real GDP is less than full employment.

In response to the recessionary gap, the government will increase spending to increase the aggregate demand back to the full employment level.

If businesses are less regulated, production will speed up and the short-run aggregate supply curve will increase.

There will be an inflationary gap as the real GDP is greater than full employment.

In response to the inflationary gap, the government will decrease spending to decrease the aggregate demand back to the full employment level.

An increase in the exchange rate in the U.S. will make the dollar appreciate or become “stronger”. As a result, consumers will feel rich and begin importing more and exporting less. This will decrease net exports, thus decreasing aggregate demand. In addition, the appreciation of the dollar will decrease foreign input prices, therefore increasing short-run aggregate supply.

There will be neither an inflationary nor a recessionary gap as the real GDP is equal to full employment.

The economy will naturally produce a full employment output as a result of the double shift.

A decrease in the exchange rate in the U.S. will make the dollar depreciate or become “weaker”. As a result, foreign consumers will find American goods as cheap and the U.S. will begin exporting more and importing less. This will increase net exports, thus increasing aggregate demand. In addition, the depreciation of the dollar will increase foreign input prices, therefore decreasing short-run aggregate supply.

There will be neither an inflationary nor a recessionary gap as the real GDP is equal to full employment.

The economy will naturally produce a full employment output as a result of the double shift.

An increase in business taxes will decrease investment demand and therefore decrease aggregate demand. The tax will also sway producers away from production and therefore also decrease short-run aggregate supply.

There will be a recessionary gap as the real GDP is less than full employment.

The decrease in investments will decrease capital in the long run, therefore shifting the long-run aggregate supply to the original price level and a new full employment output.

A decrease in business taxes will increase investment demand and therefore increase aggregate demand. The decrease in the tax will also persuade producers to produce and therefore also increase short-run aggregate supply.

There will be an inflationary gap as the real GDP is greater than full employment.

The increase in investments will increase capital in the long run, therefore shifting the long-run aggregate supply to the original price level and a new full employment output.