2. Short-run equilibrium and long-run aggregate supply Aa Aa The following graph

Question

2. Short-run equilibrium and long-run aggregate supply Aa Aa The following graph shows several aggregate demand and aggregate supply curves for an economy whose natural rate of output is $4 trillion. The curves are labeled A, B, C, and D. Three points on the diagram are indicated by grey stars and labeled X, Y, and Z. PRICE LEVEL 150 145 140 135 130 125 120 115 110 0 123 4 5 6 78 INCOME, OUTPUT (Trillions of dollarsl] Identify which curve on the graph corresponds to each description in the following table. If the curve described is not shown on the graph, choose "Not Shown." Not Shown AD LRAS As if the expected price level is 125 As if the expected price level is 130 As if the expected price level is 140

Explanation / Answer

AD curve is downward sloping so curve C. LRAS corresponds to full employment level and is vertical so D. Rest of the curves are not shown as the curves A and bare SRAS curves for two expected price levels which aren't mentioned in the diagram.

At point, Z country is producing at an output level more than the natural level of output.Real wages would be equal to what the firm and workers would expect. Wages will increase in the long run which will cause AS(B) curve to shift upward (production decrease due to increase wages). New equilibrium output will be 4 and price equal 140.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.