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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?

To determine

Reasons for which equilibrium is not achieved at potential output are to be determined.

Explanation

Graphically, when AD curve intersects AS curve, equilibrium output and price level is determined.

There are mainly two reasons which prevents economy from achieving equilibrium at potential output.

Insufficient aggregate demand leads to leftward shift o...

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