Suppose that economy starts at long-run equilibrium

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Suppose that the economy starts at a long-run equilibrium and that the short-run aggregate supply curve has a positive slope. Now suppose that a negative supply shock hits the US.

No Policy Intervention: Using the model of aggregate demand and aggregate supply and the Phillips curve illustrate graphically the impact in the short run and in the long run of this negative supply shock. Be sure to label the axes, the curves, the initial equilibrium values, the direction the curves shift, the short-run equilibrium values, and the long-run equilibrium values. Explain what happens to prices and output in short run and the long run.

Reference no: EM131376387

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