b. Beginning with output equal to potential, suppose there is a drop in business confidence and investment falls. This is a shock to the Canadian economy, which shifts the curve to the and creates gap. Unit costs will start to and the curve will shift Long-run equilibrium will (slowly) be restored at output and a price level.
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The shock to the Canadian economy, such as a drop in business confidence and investment, will cause a leftward shift in the aggregate supply curve. This means that at any given price level, firms are willing to supply less output. Show more…
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