Economic Fluctuations

Question 1

Supply shock

What happens if the impact is negative?

Answer 1

Shifts the supply curve

If shifted to the left, policy makers might do nothing (price will adjust) or increase aggregate demand (and prices)

Question 2

Model of aggregate demand and supply

Answer 2

Explain short run fluctuations around its long run trend.

Components of gdp (aggregate demand) respond negatively to increase in prices, causing fluctuations in the economy (short run)
Its curve is vertical in the long run, being affected by new technologies
Output is not affected, price is.