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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Give an example of a favorable shock to aggregate supply. Use model of aggregate demand and aggregate supply to explain the effects of such a shock. How does it affect the Phillips curve?

To determine

An example of favorable supply shocks in aggregate supply curve and the effects of shocks in Phillips curve.

Explanation

The improved productivity and decline in oil price is an example of favorable shocks to aggregate supply. The effect of favorable shocks on aggregate-supply curve is explained with the help of a diagram shown below.

Figure 1 shows the shift in demand curve due to favorable shocks.

The vertical axis of panel ‘A’ in Figure 2 measures the price level and the horizontal axis measures the quantity of output...

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