Demand and supply

Draw a separate, correctly labeled aggregate demand and supply graph to illustrate each of the following situations. On each of your graphs, include the relevant short-run aggregate supply curve(s), long-run aggregate supply curve(s), and aggregate demand curve(s).

a. Expansionary fiscal policy moves the economy out of a recession.

b. Investment in infrastructure by the government leads to long-run economic growth. I drew a by shifting the aggregate demand outward to close the gap of recessionary gap. I think that I need to move potential output (LRAS) to rightward, but I don’t know how to deal with rest of the factors: aggregate demand and short-run aggregate supply.

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