Assignment:
You answers should be in clearly written sentences and clearly labeled graphs. (Use a ruler or graph paper if necessary.)
1) Read the following article. Using the Aggregate Demand and Aggregate Supply model show how the events described could cause a recession. Your answer should include a well labeled graph and an explanation of how the graph describes the recession.
https://blogs.wsj.com/economics/2015/02/12/winter-snow-weighs-on-first-quarter-gdp/
a. Draw an Aggregate Demand/Aggregate supply graph to show the original equilibrium (before the shock).
b. Draw the shock as a shift in one of the curves. Label the new equilibrium.
c. Describe the effect of this shock on key variables (real growth and inflation)
2) Read the following article about the beginning of the "Great Recession" in 2007-2008.
https://www.economist.com/node/12637090
a. Draw an Aggregate Demand/Aggregate supply graph to show the original equilibrium (before the shock).
b. Draw the shock as a shift in one of the curves. Label the new equilibrium.
c. Describe the effect of this shock on key variables (real growth and inflation)
d. Will the economy stay at this new equilibrium? If not how will the economy return to its long run equilibrium?