1. On the following graph illustrate the short run and long run effects of an increase in aggregate demand. Describe what happens to the price level, output, and employment.

2. Describe whether the following changes cause the aggregate demand curve to increase, decrease, or neither?
A. The price level increases
B. Investment Decreases
C. Imports decrease and exports increase
D. The price level decreases
E. Consumption increases
F. Government purchases decrease
3. Suppose that a sudden increase in aggregate demand moves the economy from its long equilibrium
Illustrate this change using the aggregate demand- aggregate supply model

Transcribed Image Text:

Price Level |Long-run Aggregate Supply Short-run Aggregate Supply p* Aggregate Demand Natural Rate of Output Output