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A-Level Economics · AD shift left (recession) diagram question

Which point is the recession equilibrium?

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The diagram

The answer

Point F. AS crosses AD2 at point F: price level P₂, real output Y₂. Lower output AND lower inflation. After the fall in AD the economy slides DOWN the AS curve to where AS crosses the new demand curve — point F. Both the price level and real output fall: this is the deflationary gap.

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