An article on bloomberg.com noted that “Greece’s economy contracted for the first time in two years in the fourth quarter of 2018 as consumption and capital formation both shrank.”

a. What does the article mean by “Greece’s economy contracted”? A change in which economic variable indicates that an economy is contracting? 

b. Use a basic aggregate demand and aggregate supply graph (with LRAS constant) to illustrate what happened to the Greek economy during the fourth quarter of 2018. 

c. On your graph, show the adjustment back to long-run equilibrium.