Describe intuitively with economic reasoning and show in a graph how September 11, 2001 impacted the AD/AS curve in the USA. Please demonstrate your reasoning under followings scenarios:
State of panic in the economy
Shortage of demand
Lowering price expectation
Increase in unemployment
Lowering wages
Lowering taxes
Increase in money supply and reduction of target interest rate by the FED through Open Market Operations
- Now suppose that the economy was in state of equilibrium before September 11, 2001:
a. The aftermath of the recession in the USA was a cyclical downturn or an economic shock?
b. If it was an economic shock, using an AD-AS diagram, demonstrate how the economy reached its long-run equilibrium by appropriate monetary and fiscal policy
Sample Solution
