**Transcription of Educational Content**---**Title:** AD; SRAS; LRAS; Short-run equilibrium; Long-run equilibrium; Recessionary gap and Inflationary gap**Discussion:**Consider the following diagrams. If the economy is experiencing an inflationary gap, where is it located with respect to both the institutional PPF and the physical PPF?**Diagrams:**1. **Graph on the Left: Aggregate Supply and Demand** - **Axes:** - Vertical Axis: Price Level - Horizontal Axis: Real GDP - **Curves:** - **AD₁ (Aggregate Demand):** Downward sloping line. - **SRAS₁ (Short-Run Aggregate Supply):** Upward sloping line. - **LRAS (Long-Run Aggregate Supply):** Vertical line intersecting the horizontal axis at Qₙ. - **Equilibrium Points:** - Short-run equilibrium is at the intersection of AD₁ and SRAS₁. - Qₙ and Q₁ are labeled on the horizontal axis, with Qₙ being the long-run equilibrium.2. **Graph on the Right: Production Possibility Frontier** - **Axes:** - Vertical Axis: All Other Goods - Horizontal Axis: Good X or Real GDP - **Curves:** - **Physical PPF:** Outer curve. - **Institutional PPF:** Inner curve. - Point D is located between the institutional PPF and the physical PPF, closer to the physical PPF.---Analyzing these diagrams helps in understanding the position of an economy within the potential output limits, highlighting the distinction between short-run fluctuations and long-run potential.

Inflationary gap occurs when the current output(GDP) in a nation is in excess of the…

AD; SRAS; LRAS; Short-run equilibrium; Long-run equilibrium; Recessionary gap and Inflationary gap. Consider the diagram below, if the economy is in an inflationary gap, where is it located with respect to both the institutional PPF and the physical PPF? LRAS Physical PPF SRAS, Institutional PPF AD. Qu Real GDP Real GDP Good X Price Level All Oth er Goods

AD; SRAS; LRAS; Short-run equilibrium; Long-run equilibrium; Recessionary gap and Inflationary gap. Consider the diagram below, if the economy is in an inflationary gap, where is it located with respect to both the institutional PPF and the physical PPF? LRAS Physical PPF SRAS, Institutional PPF AD. Qu Real GDP Real GDP Good X Price Level All Oth er Goods

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Congratulationst You have been appointed an economic policy adviser to the United States, You are told that the economy is significantly abowe futtemplyoment GDP. Based on this inlormation, how can the economy would adjust to reach LR.SR Equilbrium (Classical View)? The economy wilt experience low unemployment rate, pushing wages up, and increasing the pelces of a key input (labor). shatting the sAS to the left (up). The economy will experience high unemployment rate, pushing wages down, and reducing the prices of a key input (labor). shiting the SAS to the right (down). The econoriny wil experience low unemployment rate, decreasing inceme, which will eventually shift the AD to the left. The eooncmy will experience low unemployment rate, pushing wages up, and increasing the prices of a key input (labor), shiting the sAs to the night (down).
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