(Solved): 13. Applying the extended AD-AS model The following graph shows an economy's aggregate demand curv ...

13. Applying the extended AD-AS model The following graph shows an economy's aggregate demand curve and its short-run and long-run aggregate supply curves. Suppose that fast economic growth and low interest rates raise consumer conlidence and business expectations. The aggregate demand curve shirts from \( A D_{1} \) to \( A D_{2} \). Also suppose that the government decides not to use a stabilization policy and allows the economy to adjust on its own. Determine which curve, the aggregate demand curve or the short-run aggregate supply curve, shirts when the ecanomy adjusts in the lang run. Use either the bilue line (circle symbol) to plot a new aggregate demand curve or the orange line (square symbol) to plat a new short-run aggregate supply curve to show the econamy in iong-run equilibrium. Make sure the curve you plit is parallel to onte of the existing curves Note: You can check the stope of each line by selecting it. Which of the follawing statements best describes how the economy will adjust on its own in the long run? Low unemployment contributes to an increase in aggregate demand, and the aggregate demand curve shifts to the right until the economy is back at the long-run equilibrium. Wages and resource prices fall, and the SRAS curve shifts to the right untit the economy is back at the fong-run equilibrium. Wages and resource prices rise, and the SRAS curve shirts to the left until the economy is back at the long-run equilibrium. High unemployment contributes to a decrease in aggregate demand, and the aggregate demand curve shifts to the left until the economy is back at the long-fun equilibrium. Suppose firms in this economy incur costs when they post new prices. That is, firms experience when they raise prices quickly. This would cause both the price level and resource costs to be . In this case, the economy can be expected to adjust to tong-run equilibrium an economy in which firms do not take this cost into account.