Discuss adjustments in short run equilibrium if aggregate demand-00158
This subjective question is related to the book/course
vu bt301 Introduction to Biotechnology.
It can also be found in
vu bt301 Mid Term Solved Past Paper No. 3.
Short-run equilibrium is determined by the intersection of the aggregate demand curve with the short-run aggregate supply curve.
At point output is greater the potential output SARS start to move shift up and output start falling down.
Inflation will rise. if no action will be taken by policy maker at this stage then Economy will move to point 3, where Current inflation will be greater then Target inflation aggregate demand curve shifts to the right and inflation will rise if policymakers committed to their original inflation target then they will do something to get the economy back to the point where it started government purchases will raise the real interest rate increasing the real interest rate at every level of inflation will be achieved by compensating the shifting of monetary reaction curve to the left.
When the monetary policy reaction curve shifts, the aggregate demand curve also shifts with it.
The aggregate demand curve will shift to the left, and economy will be back to long-run equilibrium.
