1. Use the (Keynesian) AD-AS  model to answer the following questions.
2. Draw the effects of a recession caused by a decrease in aggregate demand.  For simplicity, assume that your economy starts at general equilibrium.  Label your graph carefully. 
3. Assume you are the chairman of the Fed.  What are your two options?  When would each policy be the optimal policy?
4. Draw the effects of both of these options and explain in words.

Answer rating: 100% (QA)

In the Keynesian ADAS model the aggregate demand AD curve represents the total spending in an economy at different price levels while the aggregate su... View the full answer