Economics a hypothesized macroeconomy
Imagine a hypothesized macroeconomy that begins in its long-run equilibrium position.
Use the Aggregate Demand – Aggregate Supply model to describe in the abstract, the business cycle movements this economy would experience if:
(A) there were a large exogenous decrease in Aggregate Demand.
(B) there were a large exogenous decrease in Long-Run Aggregate Supply.
(C) both (A) and (B) were to occur simultaneously.
Does this model describe the US recession of 2008-2009? Which of the threes variants (A), (B), or (C) is the most likely correct scenario? Explain.
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