Question: 1- 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

1- 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.

2- The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram. Based on the diagram, answer the following questions.

1- Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves,

LRAS Aggregate price SRAS1 level E1 P1 . . . . . . . AD1 . Y1 Yp Real GDP

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