11. Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output?
There is a decrease in households’ wealth due to a decline in the stock market.
The government lowers taxes, leaving households with more disposable income, with no corresponding reduction in government purchases.