Recently, in an effort to boost the economy, the government of South Korea declared Friday, May 16th as a temporary public holiday to link the annual Children's Day with the subsequent weekend, creating a 4-day period of public holidays.
Draw an aggregate-demand / aggregate-supply diagram to show the short-run effect of this decision on the economy. Label the new levels of prices and real output. Explain in words why the aggregate quantity of output supplied changes.
Now use the diagram from part (a) to show the new long-run equilibrium of the economy. (For now, assume there is no change in the long run aggregate supply curve.) Explain in words why the aggregate quantity of output demanded changes between the short run and the long run.
How might the investment boom affect the long run aggregate-supply curve? Explain using the same graph above. You must compare the new results with your answer in part b.