Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves explain the process and causes by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another. In each case, explain the short-run and long-run effects on the aggregate price level and aggregate output.

a. There is a decrease in households’ wealth due to a decline in the stock market.

b. The government lowers taxes, leaving households with more disposable income, with no corresponding reduction in government purchases.