When a pandemic strikes the Australian economy, many businesses are temporarily closed, aggregate demand (AD) falls because people are staying at home rather than spending at those businesses. Because those businesses cannot produce goods and services, both of the short-run GDP and the economy’s potential GDP, as reflected in the SRAS and LRAS curve, fall as well. Use the following graph to answer these questions. a)Calculate the actual real GDP growth and inflation rate in 2020. b)In the long run, will inflation be expected to rise or fall and why?

When a pandemic strikes the Australian economy, many businesses are temporarily closed, aggregate demand (AD) falls because people are staying at home rather than spending at those businesses. Because those businesses cannot produce goods and services, both of the short-run GDP and the economy’s potential GDP, as reflected in the SRAS and LRAS curve, fall as well. Use the following graph to answer these questions. a)Calculate the actual real GDP growth and inflation rate in 2020. b)In the long run, will inflation be expected to rise or fall and why?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter19: Economic Development

Section: Chapter Questions

Problem 4.6P

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