The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run.
The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run.
Chapter1: Making Economics Decisions
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Problem 1QTC
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The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run.
Expert Solution
Step 1
- In the Pakistan Economy,The supply demand shock can be explained with the help of a diagram:
Here,The original AS-AD curve is given by AS and AD. A supply demand shock in the Pakistan Economy leads to a leftward shift of both the supply and demand curve as shown in the diagram. This leads to disequilibrium in the economy in the short-run and the economy operates somewhere in the shaded region.
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