What happens during first stage to equilibrium price level

Reference no: EM13219672

Consider the process by which the economy self-corrects following an initial increase in aggregate demand. This process is similar to the process of self-correction following an initial decrease in aggregate demand, but in reverse. a. Start by drawing a fully-labeled AS-AD diagram of an economy in long-run equilibrium. b. On this graph or a separate one, draw the first step of the process, an expansion of aggregate demand to a new, higher, level. c. What happens during this first stage, if anything, to the equilibrium price level? To the equilibrium level of real output? To price-level expectations? To nominal wages? To real wages? d. Next, on a separate graph, draw the second step of the self-correction process as the economy returns to its full-employment level of real output.

Reference no: EM13219672

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