In the discussion board contribution, your task is to think more carefully and applied concerning the Aggregate Demand and Aggregate Supply framework. Suppose that for some reason, there is a fall in Aggregate Demand from a position that reflected long-run full-employment output (the “natural rate of unemployment”).

If this decrease in Aggregate Demand had been anticipated by all market participants, would there be any negative effects on the levels of aggregate output and employment, and why? How would the required adjustments have come about? But suppose that there is an unanticipated increase in Aggregate Demand, what will be the short-run and long-run effects – why and through what changes?

In both the anticipated and unanticipated situations, what would happen to the general price level in these processes?

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If this decrease in Aggregate Demand had been anticipated by all market participants would there be any negative effects on the levels of aggregate output and employment and why There would be no nega... View the full answer