Figure 18-1

-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Question

Figure 18-1
 
-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and automatic stabilizers move the economy back to long-run equilibrium.Using the basic AD-AS model in the figure above,this would be depicted as a movement from

Quizplus · Accepted Answer

In the AD-AS model, if the economy is above potential GDP, automatic stabilizers will reduce aggregate demand, shifting the AD curve leftward, moving the economy from a higher output level (C) back to potential GDP (B).

Figure 18-1 -Refer to Figure 18-1.Suppose the Economy Is in Short-Run Equilibrium