Suppose the value of the price elasticity of supply is 4. what does this mean? a 1 percent increase in the price of the good cau
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Answer:
The solution to this question can be defined as follows:
Explanation:
In point a:
When consumer interest decreases, => consumers begin and save less and more, => MPC decreases; => the "IS" curve becomes flatter; => "IS" turns inside. Currently, 'AD' shows together all the goods and financial sector, => as the 'IS' curve adjusts inside the industry, => the 'AD' would also change to the left.
In point b:
Take into account the SR models of "IS-LM" and "AD-AS."
Therefore there is the case of a full job only at the beginning; => its optimum between "IS1" and "LM" in the "IS-LM" model; as well as the main equilibrium among "AD1" and "AS" in the "AD-AS" model "E1'," => the original equilibrium among "Y=Yf," "r=r1" and "P=P1." That now the consumer is reducing the confidence, => the 'IS' curve becomes shifting IMEI 'IS2,' => provided the 'LM' curve, that new balance is 'E2.' That's why the price in the SR is calculated, the AS will change =>, however, the AD also will shift the "AD2" side and "E2'" will become the equilibrium point in the "AD-AS" system, "r=r2 <r1" and "P=P1" throughout the new "Y=Y2 <Yf" balance.
Please find the graph file in the attachment.
