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Question 1
8 pts
Assume that a country's economy is above long-run equilibrium.
2 pt a) Using a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply,
show the short-run equilibrium price level, labeled PL1, and output level, labeled Y1.
2 pt b)Assume that increased uncertainty has reduced business orders for equipment. What is the impact of the change
in business orders on each of the following in the short run?
i) Aggregate demand. Explain
ii) Employment
2 pt c) based on the change to business orders, what will happen to the long-run economic growth rate? Explain
2 pt d) Using a correctly labeled graph of the loanable funds market, show the effect of the change in business orders on
the real interest rate in the country in the short run.
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