Answer to Question #242235 in Macroeconomics for Danu

Question

suppose that an economy is undergoing a recession because of a fall in AD using an aggregate demand aggregate supply (AD-AS) diagram, depict the situation of the economy

Answer 1

Solution:

During a recession because of a fall in AD, the economy will experience contraction, and businesses will see less demand and begin to make losses. This will result in laying off workers and cause a high level of unemployment.

There will be a fall in income and a fall in price levels.

 

This is depicted by the below graph: