Scenario 12.1
The economy of Ludmilla was initially at equilibrium with real GDP equal to potential GDP. In October 2011, the stock market in Ludmilla crashed, decreasing consumer wealth. The central bank of Ludmilla recognized the crash that same month and implemented corrective policy one month later. The corrective policy actually changed output in the economy 18 months after it was implemented. In the meantime, the stock market made a miraculous recovery in June 2012, returning the economy back to its initial, pre-crash equilibrium level.
-Refer to Scenario 12.1.Use the IS-MP model and the Phillips curve to explain the above changes in the economy of Ludmilla.Be sure to identify each of the changes to the economy on your graphs.

Question

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The Answer of Scenario 12.1 The economy of Ludmilla was initially at equilibrium with real GDP equal to potential GDP. In October 2011, the stock market in Ludmilla crashed, decreasing consumer wealth. The central bank of Ludmilla recognized the crash that same month and implemented corrective policy one month later. The corrective policy actually changed output in the economy 18 months after it was implemented. In the meantime, the stock market made a miraculous recovery in June 2012, returning the economy back to its initial, pre-crash equilibrium level. -Refer to Scenario 12.1.Use the IS-MP model and the Phillips curve to explain the above changes in the economy of Ludmilla.Be sure to identify each of the changes to the economy on your graphs.

Scenario 12.1 The Economy of Ludmilla Was Initially at Equilibrium with Real