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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Illustrate graphically what would happen in the short run and in the long run if individuals hold adaptive expectations, prices and wages are flexible, and aggregate demand decreases.

To determine

The graphical representation of short run and long run where people hold adaptive expectation, wage price flexibility, and a decrease in aggregate demand.

Explanation

In Figure 1, the real GDP is measured on the horizontal axis and the price level is measured on the vertical axis. In the short run, there is a decrease in the aggregate demand, while people cannot identify it because of the adaptive expectation...

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