Question

# The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for a given economy...

The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for a given economy are as follows. The schedules show the GDP price index (P) versus real GDP (Q), with Q measured in trillions of constant (real) dollars. Note that ASLR is potential output (Qf).

 P AD AS ASLR 60 7 1 3 90 6 2 3 120 5 3 3 140 4 4 3 160 3 5 3 170 2 6 3

1. Graph the AD, AS, and ASLR curves. Be sure to label the curves and the axes.

2. Explain the difference in shape between the AS and ASLR curves.

3. State the conditions for short-run equilibrium and for long-run equilibrium.

4. What is the equilibrium price level for this economy in the short run? What is Q for this economy in the short run? Show the short-run equilibrium price and short-run equilibrium output on the graph. Explain the process to equilibrium.

5. What is long-run equilibrium GDP for this economy? What is long-run equilibrium P for this economy? Explain the process to equilibrium.   #### Earn Coins

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