**1. The graph below shows the AD-AS diagram for Canada.****Graph Explanation:**The graph depicts the Aggregate Demand (AD) and Aggregate Supply (AS) framework for Canada. It features the following elements:- **Axes:** - The vertical axis represents the "Price Level." - The horizontal axis represents "Real GDP."- **Curves:** - The **AD curve** (blue line) slopes downwards from left to right, indicating the inverse relationship between the price level and the quantity of Real GDP demanded. - The **SRAS curve** (red line) slopes upwards, illustrating the direct relationship between the price level and the quantity of Real GDP supplied in the short run. - The **LRAS line** (black vertical line) is fixed and represents the potential output of the economy, indicating the full employment level of Real GDP.The intersection of the AD curve and SRAS curve determines the equilibrium in the short run.**GDP Gap Analysis:**The position of the equilibrium relative to the LRAS line helps to identify any output gaps:- **Equilibrium occurs at a lower Real GDP than the LRAS.** - This indicates that the current output is less than the economy's potential output.**Question:**What type of the GDP gap is observed in Canada (select one)?a. There is no recessionary or inflationary gap. b. The economy is facing a recessionary gap. c. The economy is facing an inflationary gap.

Inflationary gap is when the actual GDP is greater than the potential GDP of the country. Recessionary gap is when the actual GDP is less than the potential GDP of the country.In this diagram the country is facing a recessionary gap, as the actual GDP is less than the potential GDP and thus there will be requirement of expansionary fiscal policy. Thus option b is correct

Business

Economics

1. The graph below shows the AD-AS diagram for Canada. 1200† 1100+ 1000 900 800 700+ 600 400 » 300 - ' 200 100+ LRAS 100 200 "Real GDP 400 500 600 700 800 900 1000 1100 126 What type of the GDP gap is observed in Canada (select one)? a. There is no recessionary or inflationary gap. b. The economy is facing a recessionary gap. c. The economy is facing an inflationary gap. Price Level

1. The graph below shows the AD-AS diagram for Canada. 1200† 1100+ 1000 900 800 700+ 600 400 » 300 - ' 200 100+ LRAS 100 200 "Real GDP 400 500 600 700 800 900 1000 1100 126 What type of the GDP gap is observed in Canada (select one)? a. There is no recessionary or inflationary gap. b. The economy is facing a recessionary gap. c. The economy is facing an inflationary gap. Price Level

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 37RQ: What are some of the ways in which exports and imports can affect the AD/AS model?

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

**1. The graph below shows the AD-AS diagram for Canada.**

**Graph Explanation:**

The graph depicts the Aggregate Demand (AD) and Aggregate Supply (AS) framework for Canada. It features the following elements:

- **Axes:**
- The vertical axis represents the "Price Level."
- The horizontal axis represents "Real GDP."

- **Curves:**
- The **AD curve** (blue line) slopes downwards from left to right, indicating the inverse relationship between the price level and the quantity of Real GDP demanded.
- The **SRAS curve** (red line) slopes upwards, illustrating the direct relationship between the price level and the quantity of Real GDP supplied in the short run.
- The **LRAS line** (black vertical line) is fixed and represents the potential output of the economy, indicating the full employment level of Real GDP.

The intersection of the AD curve and SRAS curve determines the equilibrium in the short run.

**GDP Gap Analysis:**

The position of the equilibrium relative to the LRAS line helps to identify any output gaps:

- **Equilibrium occurs at a lower Real GDP than the LRAS.**
- This indicates that the current output is less than the economy's potential output.

**Question:**
What type of the GDP gap is observed in Canada (select one)?

a. There is no recessionary or inflationary gap.
b. The economy is facing a recessionary gap.
c. The economy is facing an inflationary gap.

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