The following graph illustrates an economy in long-run equilibrium at a price le
ID: 1194132 • Letter: T
Question
The following graph illustrates an economy in long-run equilibrium at a price level of 120 and real GDP of $17.0 trillion. Assume that an increase in real estate prices raises household wealth.
A. What two assumptions are used when the economy is said to be in initial long-run equilibrium at a price level of 120 and real GDP equal to $17.0 trillion?
B. Use a graph (or the above graph) to describe the changes in aggregate demand and aggregate supply that result in a short-run and a long-run equilibrium following the increase in household wealth.
Explanation / Answer
The following graph illustrates an economy in long-run equilibrium at a price le
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