Answer to Question #62658 in Macroeconomics for Jongwon Won

Question

Can you thoroughly explain the effects of an increase in unemployment benefits on the position of the AD and As curves in the short and medium run? Plus, I have no idea why that moves the LM curve. Can you explain why? please...

Answer 1

An increase in unemployment shifts the AS curve to the left in the short and medium run, that's why the price level and inflation increases and the output level decreases. The LM curve is used to determined equilibrium in the money market. The L stands for liquidity and M for Money.