Question: 11. Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following economic events will move

11. Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another.

Illustrate with diagrams. In each case, what are 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.

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