```AS-LR
6
5
4
2
0 3
P*
9
10
1
8
7
YFE
In all cases, the economy begins with ADstart andAS-LR.
economy will be at point #_9_. The Long Run
Equilibrium will be at point # _10__
will be at point #_3_. The Long Run Equilibrium
will be at point # _5_
will be at point #_4_. The Long Run Equilibrium
will be at point # _6_
4) Moving from point 0 to point 9, income goes _↓_
and prices go _↓_
5) Moving from point 0 to point 7, income goes _stays
the same_ and prices go _↓__
6) Moving from point 0 to point 3, income goes _↑_
and prices go _↑_
7) Moving from point 0 to point 2, income goes _↓_
and prices go _↑_
8) Moving from point 0 to point 2 requires that
employment goes _↓_ and unemployment goes _↑_
Note: when income goes down in the short run,
then employment went down and unemployment
went up. Vice versa: when income goes up in the
short run, then employment went up and
unemployment when down.
9) Moving from point 8 to point 7 requires that
employment goes _↑_ and unemployment goes _↓_
10) Moving from point 0 to point 8 requires that
employment goes _↓_ and unemployment goes _↑_
11) All points representing long run equilibrium are #’s:
7, 10, 0, 5, 6 (all the points on the AS long run
curve)
12) All points representing a recession are #’s: 8, 9, 2
(all the points to the left of full employment
income, YFE)
13) In Keynesian theory, all points representing
disequilibriums are #’s: 8, 9, 2, 3, 4, 1 (all the
points that aren’t long run equilibriums)
14) Moving from point 8 to point 7, income goes _↑_,
unemployment goes _↓_, and the economy is
undergoing a recession/recovery?
15) The worst economy would be characterized by point
_8_ (the lowest income level)
16) If Consumer Confidence drops, in the short run the
economy will be at point #_9 or 8__. Prices go _↓_.
Income goes _↓_. Unemployment goes _↑_. In the
long run, the economy will be at point #__10 or 7__
and income and unemployment will be at __natural
rate or full employment___ Note: the reason for
this is because and Consumer Confidence drops,