2.(a) Using the AD, LRAS and SRAS curves on price level (P) - quantity of output (Y) diagram, show the macroeconomic equilibrium of an economy.
(b) If there were a sudden increase in AD due to a stock market boom, how does the equilibrium move from its initial point in the short run? What happens to the equilibrium P and Y in the short run?
(c) If there were no government actions either in fiscal or monetary policy areas, how will the economy change over time in the long run? What happens to the equilibrium P and Y in the long run?
(d) What would be the difference in your answer in part (c) if there were aggressive government action in fiscal and monetary policy areas?
(b) If there were a sudden increase in AD due to a stock market boom, how does the equilibrium move from its initial point in the short run? What happens to the equilibrium P and Y in the short run?
(c) If there were no government actions either in fiscal or monetary policy areas, how will the economy change over time in the long run? What happens to the equilibrium P and Y in the long run?
(d) What would be the difference in your answer in part (c) if there were aggressive government action in fiscal and monetary policy areas?