AB 204 STUDY Education Terms/ab204study.com AB 204 STUDY Education Terms/ab204study.com | Page 12

(spending) remains the same. (See the set of graphs below and shifts
in graphs)
2. Suppose the economy of a hypothetical country has reached its
long-run macroeconomic equilibrium when each of the following
aggregate demand shocks occurs. What kind of gap, inflationary or
recessionary gap, will the economy face after the AD shock indicated
by the shift in AD curves? What types of fiscal policy instruments
will help move the economy back to the potential level of output
(real GDP)? Give specific examples.
At the long-run macroeconomic equilibrium, the stock market boom
occurs and this increases the value of stocks households hold. (See
the set of graphs below and shifts in graphs in the two-steps)
The government increases its purchases (spending) due to natural
disasters. (See the set of graphs below and shifts in graphs)
Assume the Central Bank reduces the money supply in the economy
which leads to an increase in the interest rates. (See the set of graphs
below and shifts in graphs)
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