5-2 Discussion: Aggregate Demand and Supply
When examining the shift in the AD/AS equilibrium that occurred during the Great Recession,
we can see that the aggregate demand curve (AD) moved from point AD1 to AD2 (to the left) in
the first of my two attached images. The decline in demand for products and services is what
caused that reaction. Due to the shift in the aggregate demand curve, the price level likewise
decreased (from P1 to P2), illustrating deflation. In addition, many businesses began producing
less as a result of the decreased activity and demand in the market, which pushed them to
downsize their personnel. As a result, the unemployment rate rose and the GDP/trade volume
