Consider an economy with the following aggregate demand(AD) and aggregate supply(AS) schedules. These schedules reflect the fact that, prior to the period we're examining, decisions makers entered into contracts and made choices anticipating that the price level would be P105.
AD(in trillions)-Price Level----SRAS(in trillions)
$5.1_____________95_____________$3.5
4.9______________100_____________3.8
4.7______________105_____________4.2
4.5______________110_____________4.5
4.3______________115______________4.8
a.) Indicate the quantity of GDP that will be produced and the price level that will emerge during this period.
b.)is the economy in long-run equilibrium? Why or Why not?
c.)How will the unemployment rate during the current period compare with this economy's natural rate of unemployment?
d.) What will tend to happen to resource prices in the future? How will this affect the equilibrium rate of output?
e.) Will the rate of GDP produced during this period be sustainable into the future? Why or why not?
yes
a) To determine the quantity of GDP that will be produced and the price level that will emerge during this period, we need to find the point where aggregate demand (AD) intersects aggregate supply (AS). In this case, the AD and AS schedules are given.
By examining the given schedules, we can see that at a price level of 105, the quantity of GDP demanded (AD) and supplied (AS) is 4.2 trillion. Therefore, the quantity of GDP that will be produced during this period is 4.2 trillion, and the price level that will emerge is 105.
b) To determine if the economy is in long-run equilibrium, we need to compare the actual price level with the expected price level. In this scenario, decision-makers had anticipated a price level of 105, and the actual price level is also 105. Thus, the economy is in long-run equilibrium since the actual price level matches the expected price level.
c) To compare the unemployment rate during the current period to the economy's natural rate of unemployment, we need more information. The natural rate of unemployment refers to the level of unemployment that occurs when the economy is at its potential output in the long run. It is influenced by structural and frictional factors rather than short-term fluctuations.
Since we are not provided with information on the natural rate of unemployment or the unemployment rate during the current period, we cannot determine how they compare.
d) The given question does not provide any information about resource prices, so we cannot determine their future direction or impact on the equilibrium rate of output.
e) It is not possible to determine the long-term sustainability of the rate of GDP produced during this period based on the given information. Sustainability depends on various factors such as productivity growth, resource availability, technological advancements, and economic policies, which are not provided here. Therefore, we cannot make a conclusion regarding the sustainability of the rate of GDP produced.