The graph below shows the macroeconomy in short-run equilibrium. Suppose that a global drought occurs that ruins crops throughout the world. This drought is accompanied by a decrease in government spending on goods and services. Consider how these changes would affect the economy. Assume that the decrease in government spending is the smaller of the two effects on the economy. Use the copy and/or double-drop line tools to illustrate the change in the by macroeconomy drawing new curve(s) and plotting the new equilibrium (E2). Label all curves and points appropriately.

Transcribed Image Text:

Aggregate price level P1 Coordinates: (10.00, 99.25) Y1 Real GDP AD1 SRAS1 E1 AD2 SRAS2 E2 Unselected Aggregate price level P1 Coordinates: (10.00, 99.25) Y1 Real GDP AD1 SRAS1 E1 AD2 SRAS2 E2 Unselected

Answer rating: 100% (QA)

Decrease in government spending shifts AD curve leftwards as G ... View the full answer