**AD; SRAS; LRAS; Short-run equilibrium; Long-run equilibrium; Recessionary gap and Inflationary gap**Consider the diagram below to answer the following questions:**Diagram Explanation:**The diagram displays three primary curves on a graph where the vertical axis represents the "Price Level" and the horizontal axis represents "Real GDP."1. **AD₁ (Aggregate Demand):** A downward-sloping line indicating the relationship between the price level and the quantity of goods and services demanded.2. **SRAS (Short-Run Aggregate Supply):** An upward-sloping line showing the relationship between the price level and the quantity of goods and services supplied in the short run.3. **LRAS (Long-Run Aggregate Supply):** A vertical line indicating the economy's potential output at full employment, unaffected by the price level.**Intersection Points:**- **Point 1**: The intersection of AD₁ and SRAS represents the short-run equilibrium.- **Point 2**: The intersection of AD₁ and LRAS shows the long-run equilibrium.**Q₁** represents the level of Real GDP at Point 1, and **Qₙ** indicates the natural level of Real GDP at Point 2.**Questions:**(a) Use Point 1 and Point 2 to explain the difference between the short-run equilibrium and the long-run equilibrium.(b) The economy is currently producing Q₁. At this level of Real GDP, the economy is in a(n) _____________________ (recessionary gap or inflationary gap). Select one.(c) The unemployment rate is lower at _______ than _______ (Q₁/Qₙ, Qₙ/Q₁). Select one.(d) At Qₙ, cyclical unemployment (U꜀) is _______ (positive, negative, zero). Select one.

a. In the figure horizontal axis represents real GDP and vertical axis represents price level. In…

(a) - Use Point 1 and Point 2 to explain the difference between the short-run equilibrium and the long-run equilibrium. (b) - The economy is currently producing Qi. At this level of Real GDP, the economy is in a(n)_ . (recessionary gap or inflationary gap). Select one. (c) - The unemployment rate is lower at than (Q:/QN, QN/ Q1). Select one. (d) - At QN, cyclical unemployment (Uc) is (positive, negative, zero). Select one.

(a) - Use Point 1 and Point 2 to explain the difference between the short-run equilibrium and the long-run equilibrium. (b) - The economy is currently producing Qi. At this level of Real GDP, the economy is in a(n)_ . (recessionary gap or inflationary gap). Select one. (c) - The unemployment rate is lower at than (Q:/QN, QN/ Q1). Select one. (d) - At QN, cyclical unemployment (Uc) is (positive, negative, zero). Select one.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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