Consider an economy with the following aggregate demand (AD) and short-run aggre

Question

Consider an economy with the following aggregate demand (AD) and short-run aggregate supply (SRAS) schedules. Decision-makers have previously made decisions anticipating that the price level during the current period will be P105. a. Indicate the quantity of GDP that will be produced during the period. b. Is it a long-run equilibrium level of GDP? Why or why not? c. How will the unemployment rate during the current period compare with the natural rate of unemployment? d. Will the current rate of GDP be sustainable into the future? Why or why not? AD 105 Price Level SRAS 105 6300 90 4500 6000 95 4800 5700 100 5100 5400 105 5400 5100 110 5700 4800 115 6000

Explanation / Answer

Answer :-
Remember the quantities in an aggregate demand and supply schedule represent GDP. Each price level on the schedule represents the quantity demanded and supplied with respect to GDP.

Equilibrium will occur when supply and demand are equal.

Remember that at equilibrium, unemployment rate is equal to the natural rate at unemployment.

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