Answer Happy

(a) Explain how it is possible to obtain a
positively sloped short-run aggregate
supply function from the “sticky price” model.
(b) Provide one explanation for the negative relationship
between the aggregate price level and the aggregate output implied
by an aggregate demand function.
(c) In a diagram, draw the AD-AS model with fixed
prices in the short-run. Starting from long-run equilibrium,
suppose that there is a negative shock on the aggregate demand.
Explain the short-run and long-run effects of this negative demand
shock.
(d) Now suppose that the short-run aggregate supply is
positively sloped. Explain the short-run and long-run effects of a
negative demand shock paying attention to the role of expectation.
Compare your answer with case (c)