we can use the macroeconomic model to analyze the changes to real GDP (Y), unemployment (u) and price level (PL) as a result of some event.

2. Draw the macroeconomic model at equilibrium.Label the axis and curves correctly - PL, GDP, AD, SRAS, LRAS. Also, correctly label the equilibrium PL, Y* and u*. (20 Points)
4. Assume a drought severely lessens the corn harvest. Since corn has many uses including livestock feed and ethanol for gas, this drought causes a short-term decrease in aggregate supply (SRAS). This is a negative supply shock.
   2. Graph the shift in the curve and the new PL, Y an U in the short-run (14 Points)
   4. Would a drought that negatively impacted the corn harvest increase or decrease output (Y) in the short-run? (12 points)
   6. Would it increase or decrease unemployment (u) in the short-run? (12 points)
   8. Would it increase or decrease the overall price level in the economy in the short-run? (12 points)
   10. What would happen to Y, u and PL in the long-run? (10 points)

Answer rating: 100% (QA)

To analyze the impact of a drought on the macroeconomy we will use the ADAS Aggregate DemandAggregate Supply model Here are the steps to depict the ef... View the full answer