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During 2001 several major corporations in the United States

During 2001, several major corporations in the United States, such as Enron and World Com, were found to have misled the public about their profit ability. This negatively affected investor confidence, as stock market investors became less trustful of all accounting data, even if the corporations were honest.

On top of the accounting scandals, New York City and Washington D.C. suffered terrorist attacks, further damaging consumerconfidence.

These shocks brought the U.S. economy into recession.

The graph below shows an economy's aggregate demand curve and its short-run and long-run aggregate supply curves (labeled AD, SRAS, and LRAS, respectively) after the negative demand shocks pushed the U.S. economy into arecession.

Suppose that the U.S. government decided not to use stabilization policy and wanted the economy to self-correct. Determine which curve shifts when the economy self-corrects in the long run. Use the tan line (dash symbols) to plot the new curve, making sure that it is parallel to one of the existing curves and is consistent withthe new long-run equilibrium price level of 60.

Apr 26 2018 Read more Less More

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