AS/AD diagram

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Assume the economy in March 2001 was exactly at full employment. Draw an AS/AD diagram representing the economy's "before" position in March 2001 and its "after" position in March 2002. Make sure your diagram illustrates a simultaneous increase in RGDP and the unemployment rate, with little overall change in the price level. Explain any shifts in your AS, AD and full-employment potential output lines. (example AS/AD diagram is attached)

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The intercept of AD1 and AS is the economy before / in March 2001.
The intercept of AD2 and AS is the economy after / in March 2002.
There's a 2.5% increase in RGDP in the economy, which is shown by the right shift of AD curve. Because of the increase in AD, the price ...

Solution Summary

Draw an AS/AD diagram representing the economy's "before" position in March 2001 and its "after" position in March 2002.

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