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4. The response of the self-regulating economy The economy of Bandora is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Re GDP is currently 4 trillion dollars, and the price level is 120. PRICE LEVEL 140 135 130 125 120 115 110 105 100 0 1 Changes in a Self-Regulating Economy AD 2 SRAS AD₁ LRAS 2 3 4 5 6 REAL GDP (Trillions of dollars) 7 8 ?

4. The response of the self-regulating economy The economy of Bandora is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Re GDP is currently 4 trillion dollars, and the price level is 120. PRICE LEVEL 140 135 130 125 120 115 110 105 100 0 1 Changes in a Self-Regulating Economy AD 2 SRAS AD₁ LRAS 2 3 4 5 6 REAL GDP (Trillions of dollars) 7 8 ?

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter19: The Macroeconomic Perspective
Section: Chapter Questions
Problem 11RQ: What are the main components of measuring GDP with what is demanded?
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4. The response of the self-regulating economy The economy of Bandora is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 4 trillion dollars, and the price level is 120. PRICE LEVEL 140 135 130 125 120 115 110 105 100 0 1 Changes in a Self-Regulating Economy AD 2 SRAS AD 1 LRAS 2 3 4 5 6 REAL GDP (Trillions of dollars) 7 8 00 ?
Transcribed Image Text:4. The response of the self-regulating economy The economy of Bandora is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 4 trillion dollars, and the price level is 120. PRICE LEVEL 140 135 130 125 120 115 110 105 100 0 1 Changes in a Self-Regulating Economy AD 2 SRAS AD 1 LRAS 2 3 4 5 6 REAL GDP (Trillions of dollars) 7 8 00 ?
Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD₂. As a classical economist from Bandora, you explain that the shift in aggregate demand creates . You also explain that will be affected in the short run. You note that such a gap leads to an unemployment rate that is to. As wages change, the explain that in the long run, the natural unemployment rate. This means that wages are certain until Real GDP equals Natural Real GDP. Finally, you curve shifts to the will be affected.
Transcribed Image Text:Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD₁ to AD₂. As a classical economist from Bandora, you explain that the shift in aggregate demand creates . You also explain that will be affected in the short run. You note that such a gap leads to an unemployment rate that is to. As wages change, the explain that in the long run, the natural unemployment rate. This means that wages are certain until Real GDP equals Natural Real GDP. Finally, you curve shifts to the will be affected.
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