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Russia’s Economy Is Starting To Come Undone

EconEye Admin

In 2022, Russia’s exports decreased, and many Western countries banned exports to Russia. Young people going to the front or leaving the country to avoid the draft shrank the labor force. Uncertainty curbed business investment. Retail sales fell 6.7%. Government revenues decreased. GDP fell 2.1% and inflation was over 10%.—wsj.com

Answer the following questions to check your understanding of the story.

According to the news clip, why did Russia’s aggregate demand shrink in 2022?

Russia’s aggregate demand shrank because _____________.

Wrong! - The relationship between the quantity of real GDP demanded and the price level is called aggregate demand. What information in the news clip can be used to calculate the quantity of real GDP demanded?

Well Done! - The quantity of real GDP demanded is the sum of consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services. The news clip states that exports, investment, and consumption expenditure decreased, and this contributed to the decrease in aggregate demand.

What happened to Russia’s short-run aggregate supply in 2022?

Russia’s short-run aggregate supply ______________.

Wrong! - The news clip states that the inflation rate in 2022 was over 10 percent. We know that aggregate demand decreased. How does the price level change when aggregate demand decreases? What must have happened to short-run aggregate supply?

That's Right! - The news clip states that the inflation rate in 2022 was over 10 percent. Aggregate demand decreased, and when aggregate demand decreases, the price level falls. So it must be the case that short-run aggregate supply decreased, and that it decreased by more than aggregate demand decreased.

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