Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment? • Consumers expect a recession • Foreign income rises • Foreign price levels fall
Use an aggregate
• Consumers expect a recession
• Foreign income rises
• Foreign price levels fall
• Government spending increases
• Workers expect high future inflation and negotiate higher prices now
• Technological improvement increase productivity
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Government spending increases
• Workers expect high future inflation and negotiate higher prices now
• Technological improvement increase productivity
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