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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Suppose that the economy is self-regulating, that the price level is 132, that the quantity demanded of Real GDP is $4 trillion, that the quantity supplied of Real GDP in the short run is $3.9 trillion, and that the quantity supplied of Real GDP in the long run is $4.3 trillion. Is the economy in short-run equilibrium? Will the price level in long-run equilibrium be greater than, less than, or equal to 132? Explain your answers.

To determine

Explain the price level of long-run equilibrium and short-run equilibrium.

Explanation

In a market, the short-run equilibrium point will occur where the aggregate demand (AD) curve and short-run aggregate supply (SRAS) curve intersect each other. Here, the aggregate demand is $4 trillion, and the short-run aggregate supply (SRAS) is 3.9 trillion. This implies that the aggregate demand is greater than the short-run aggregate supply. At the short-run equilibrium point ‘A’, the economy is in recessionary gap...

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