Panel (a) Panel (b) Price level LRAS Price level LRAS SRAS SRAS P3 P2 P2. AD AD Y, Y Real GDP Real GDP Refer to Figure above. The level of income associated with Y1 in panel (b): Ois equal to potential output. reveals an inflationary gap compared with Yp. Osa long-run equilibrium. O is caused by flexible wages and prices.

Panel (a) Panel (b) Price level LRAS Price level LRAS SRAS SRAS P3 P2 P2. AD AD Y, Y Real GDP Real GDP Refer to Figure above. The level of income associated with Y1 in panel (b): Ois equal to potential output. reveals an inflationary gap compared with Yp. Osa long-run equilibrium. O is caused by flexible wages and prices.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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when equilibrium GDP falls belowpotential, an inflationary gap exists true false