Explore BrainMass
Share

AD/AS model

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Answers to questions:

Regarding the economy's adjustment process, use the AD/AS model to:

a) Show the short-run effects of an increase in desired saving(assuming that the economy is initially in a long-run equilibrium with Y* = Y).

b) Describe the adjustment process that brings the economy to its new long-run equilibrium.

c) Compare the initial and the new long-run equilibrium. WHat is the long-run effect of the increase in desired saving?

© BrainMass Inc. brainmass.com October 24, 2018, 7:04 pm ad1c9bdddf
https://brainmass.com/economics/aggregate-demand-and-supply/ad-as-model-56874

Solution Preview

a) Show the short-run effects of an increase in desired saving(assuming that the economy is initially in a long-run equilibrium with Y* = Y).

Desired saving depends on the Real Disposable Income. The rise in desired saving shifts the Sd curve to the right; in equilibrium, this reduces the real interest rate, increasing investment as well. The rise in investment will increase the ...

Solution Summary

Desired saving is determined.

$2.19
See Also This Related BrainMass Solution

The AD/AS Model in the Long Run

This is a power-point presentation that demonstrates the AGGREGATE DEMAND AGGREGATE SUPPLY OR AD/AS MODEL IN THE LONG RUN as outlined in Mankiw's intermediate macroeconomics text. The slides build the model up one step at a time and provide an introduction to business cycles in the macroeconomy.

View Full Posting Details