Question: Assume that for some reason there is a supply shock in a country's economy. Study and interpret graph (a) below and then answer the

Assume that for some reason there is a What is an AD-AS model and what does such a model as per the given diagram essentially focus on? (2) Discuss

Assume that for some reason there is a "supply shock" in a country's economy. Study and interpret graph (a) below and then answer the questions that follow: (a) Aggregate Demand and Aggregate Supply Analysis Inflation Rate, = LRAS, LRAS, Y Step 2 AD, Step 1 Aggregate Output, Y | What is an AD-AS model and what does such a model as per the given diagram essentially focus on? (2) Discuss the diagram in detail by first explaining what leads to step Step 1 (representing a shift in curves on the diagram) and indicating what occurs to cause shifts in some of the curves. Then discuss Step 2 (which represents other macroeconomic changes) and indicate what happens to other variables when there are shifts in some of the curves as per Step 1. (4) What, in general, do the points of intersection between the AS and AS2 curves and the AD curve show? (1) When the LRAS curve moves to the right to LRAS2, what exactly do the points of intersection between the AS and AS curves and the AD curve, indicated as point 1 and point 2, reflect on the diagram? (2)

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