Confused and not sure how to answer The economy of Langoria is currently in a state of long-run equilibrium in which the economy isproducing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the pricelevel is 130.PRICE LEVEL180170160150130120110Changes in a Self-Regulating Economy10001AD1SRASADLRAS234REAL GDP (Trillions of dollars)567(?)Suppose there is a sudden increase in government purchases that causes a shift in aggregatedemand from AD1 to AD2. As a classical economist from Langoria, you explain that the shift inaggregate demand createsY You also explain thatwill be affected in the short run.You note that such a gap leads to an unemployment rate that isunemployment rate. This means that wages are certain toY curve shifts to theFinally, you explain that in the long run,the natural. As wages change, theuntil Real GDP equals Natural Real GDP.will be affected.

The over the long run economy operates at the full employment level or natural level of output. The…

The economy of Langoria is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130.

The economy of Langoria is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter14: Aggregate Demand And Supply

Section14.A: The Self Correcting Aggregate Demand And Supply Model

Problem 1SQP

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Confused and not sure how to answer

The economy of Langoria is currently in a state of long-run equilibrium in which the economy is
producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price
level is 130.
PRICE LEVEL
180
170
160
150
130
120
110
Changes in a Self-Regulating Economy
100
0
1
AD
1
SRAS
AD
LRAS
2
3
4
REAL GDP (Trillions of dollars)
5
6
7
(?)
Suppose there is a sudden increase in government purchases that causes a shift in aggregate
demand from AD1 to AD2. As a classical economist from Langoria, you explain that the shift in
aggregate demand creates
Y You also explain that
will be affected in the short run.
You note that such a gap leads to an unemployment rate that is
unemployment rate. This means that wages are certain to
Y curve shifts to the
Finally, you explain that in the long run,
the natural
. As wages change, the
until Real GDP equals Natural Real GDP.
will be affected.

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