Spring of 2020 the world economy experienced a significant decrease in SRAS. That was followed by a decrease in SRAD. Draw those on a graph. What would you expect to happen in your local economy as a result of those shifts? How do you expect the short run and the long run to be related? How long do you expect the short run to be? Why? Will the new long run equilibrium be at a lower level? Why or why not?
The Short Run Aggregate Supply would move the supply curve to the left, sliding up the equilibria to a higher price level. The Short Run Aggregate Demand would move the demand curve to the left as well moving the price level lower to balance out. Overall the Natural level of output would lower to a new natural level.
The SRAD curve should shift to the right if consumers were given a tax cut or the stock market did well. Also a fall in interest rates would shift to the right.
In my local economy I would expect to see unemployment levels rise, and output to fall, prices to fall. In the short term. Long term the economy should find a new equilibria and adjust. I estimate the short run to be a matter of 1 year as I feel I’m seeing adjustments already being made to this new normal. Yes the new long run equilibrium will be at a lower level.
Dude.World 