Cannot attach graph!
a. If the actual price level exceeds the expected price level reflected in long-term contracts, real GDP equals _______ and the actual price level equals _______ in the short run.
b. The situation described in part (a) results in a(n) _______ gap equal to _______.
c. If the actual price level is lower than the expected price level reflected in long-term contracts, real GDP equals _______ and the actual price level equals _______ in the short run.
d. The situation described in part (c) results in a(n) _______ gap equal to _______.
e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP equals _______ and the actual price level equals _______ in the short run.
f. The situation described in part (e) results in a(n) _______ gap equal to _______.
This what I have so far.....
a. 14.2 trill, 130
b. expansionary, 0.2 trill
c. 13.7 trill, 110
d. recessionary, 0.3 trill
e. 14.0 trill, 120
f. ??, ??
The graph has a SRAS going up from
GDP 13.7 and 110 price level
GDP 14.0 and 120 price level
GDP 14.2 and 130 price level
To answer the remaining questions (f), we need to understand the concepts of inflationary and deflationary gaps.
An inflationary gap occurs when the actual price level exceeds the expected price level, leading to higher prices and increased production. A deflationary gap occurs when the actual price level is lower than the expected price level, causing lower prices and decreased production.
To determine the values for part (f), we need to find the missing values of real GDP and the actual price level when the actual price level equals the expected price level.
Let's calculate it:
e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP equals _______ and the actual price level equals _______ in the short run.
We know that the expected price level is 120. Therefore, when the actual price level equals 120, we need to find the corresponding real GDP.
To find the real GDP, we need to refer to the provided information or use an economic model. Unfortunately, it's not provided in your question, so we can't determine the exact value for real GDP.
Therefore, for part (e), we can say:
e. If the actual price level equals the expected price level reflected in long-term contracts, real GDP is uncertain, and the actual price level equals 120 in the short run.
Now let's move on to part (f).
f. The situation described in part (e) results in a(n) _______ gap equal to _______.
Since we don't have the exact value for real GDP, we can't determine the size of the gap accurately.
Therefore, for part (f), we can say:
f. The situation described in part (e) results in an uncertain gap equal to an uncertain value.
Please note that without more specific information or economic data, we can't provide exact answers for part (e) and part (f).
f. The situation described in part (e) results in a "full-employment" gap equal to zero.
The reason for this is that when the actual price level equals the expected price level reflected in long-term contracts, there is no deviation from the expected level of production or employment. Real GDP is already at its full-employment level, and there is no need for any additional output or adjustment in the short run. Therefore, there is no gap between the actual and potential levels of real GDP in this scenario.