a starting point of simultaneous long run and short run macroeconomic equilibrium, with the overall production level in the economy at the natural rate level of real GDP (Y_NR). This equilibrium may be illustrated in a diagram with the average price level (P) measured on the vertical axis, and real GDP (Y) measured on the horizontal axis. The long run equilibrium is represented by the intersection of the vertical long run aggregrate supply function (LRAS), and the downward sloping aggregate demand function (AD). The short run equilibrium is represented by the intersection of the upward sloping short run aggregate supply function (SRAS), and the downward sloping aggregate demand function (AD). (See the diagram on the left panel.)

If a recession were to occur as a result of an inward shift in the AD function (see the diagram on the right panel), What would be the the result ?

  

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Impact of an Inward Shift in Aggregate Demand AD on Macroeconomic Equilibrium Starting Point Youve described a situation where the economy is initiall... View the full answer