Assignment:
Suppose the economy was at equilibrium before the start of the recession. Show this using the IS-LM, Keynesian cross, AD-SRAS-LRAS and money market spaces.
Following the start of the recession, what happened to aggregate demand and output? (You should be able to see this from the plots in section 1 above). Show this shift in AD and IS curves.
How could monetary policy have ensured a faster return to the long-run equilibrium? Use the money market and LM curves to show this.