Consider an economy where the starting point is a situation in which the economy is neither weak
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Question:
Consider an economy where the starting point is a situation in which the economy is neither weak nor overheated.
1. Use the line drawing tool to draw the position of three curves IS, LM, and YPOT. Properly label your lines.
2. Use the point drawing tool to label the starting point of aggregate demand. Label your point "AD0". Suppose that consumer confidence declines.
3. Use the line drawing tool to draw the immediate impact of this development in the diagram, holding prices constant. Properly label your line. As a consequence of this demand shock, prices should (INCREASE/DECREASE).
4. Use the line drawing tool to depict this change in prices. Properly label your line.
Carefully follow the instructions above and only draw the required objects.
Expert Answer:
1 Draw the IS curve The IS curve represents the equilibrium points in the goods market It shows the ... View the full answer
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