Impacts of Financial Crisis to Development of The Countries

Financial crises, such as the one that impacted many developed countries starting in 2007, decrease banks’ ability and willingness to make loans.Decreased availability of credit decreases businesses’ ability to make investment purchases and consumers’ ability to buy goods and services. As aresult, a financial crisis is a negative shock for an economy.The following graph shows an economy’s aggregate demand curve and its short-run and long-run aggregate supply curves after a financial crisis haspushed it into recession. Suppose that the government decides not to use a stabilization policy and allows the economy to adjust on its own.Determine which curve, the aggregate demand curve or the short-run aggregate supply curve, shifts when the economy adjusts in the long run. Useeither the blue line (circle symbol) to plot a new aggregate demand curve or the orange line (square symbol) to plot a new short-run aggregate supplycurve to show the economy in long-run equilibrium. Make sure the curve you plot is parallel to one of the existing curves.Note: You can check the slope of each line by selecting it.(?)200LRAS180O160New ADAD140-0-PRICE LEVEL120New SRAS10060BRAS4020101214161820REAL GOP (Trillions of dollars)Which of the following statements best describes how the economy will adjust on its own in the long run?O Low unemployment contributes to an increase in aggregate demand, and the aggregate demand curve shifts tothe right until the economy is back at the long-run equilibrium.O High unemployment contributes to a decrease in aggregate demand, and the aggregate demand curve shifts tothe left until the economy is back at the long-run equilibrium.Wages and resource prices fall, and the SRAS curve shifts to the right until the economy is back at the long-runequilibrium.Wages and resource prices rise, and the SALAS curve shifts to the left until the economy is back at the long-runequilibrium.

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