### Understanding Aggregate Supply#### Long-Run Aggregate Supply (LRAS) CurveIn this section, we will explore the Long-Run Aggregate Supply (LRAS) curve as illustrated in the graph below.![Aggregate Supply Graph](image-link-placeholder)The graph shows the relationship between the price level and real GDP (measured in billions of dollars). The vertical line represents the LRAS curve.**Key Components of the Graph:**1. **Vertical (Y) Axis: Price Level** - The Price Level ranges from 0 to 160.2. **Horizontal (X) Axis: Real GDP (billions of dollars)** - Real GDP ranges from 0 to 160 billion dollars.3. **LRAS Curve**: - The LRAS curve is a vertical line positioned at 80 billion dollars of Real GDP. This implies that in the long run, the total output or real GDP remains consistent, regardless of changes in the price level.**Interpreting the LRAS Curve:**- The vertical nature of the LRAS curve suggests that in the long run, the economy's output is determined by factors such as technology, resources, and institutional structures, rather than the price level.- Changes in the price level do not affect the real GDP in the long-run.**Example Analysis:**- **Question**: If the price level rises from 100 to 120, real GDP will...- **Answer**: Remain unchanged at 80 billion dollars as indicated by the vertical LRAS curve.By studying this graph, students will understand that in the long-run, an economy's output is primarily driven by its productive capacity and not the fluctuations in price levels. This concept is fundamental in macroeconomic analysis and helps in understanding the determinants of economic growth over extended periods.

Real GDP, or real gross domestic product, is a measure of economic output adjusted for inflation. It…

Answered: Price Level 160 140 120 100 80 60 40 20…

Price Level 160 140 120 100 80 60 40 20 0 Aggregate Supply LRAS 20 40 60 80 100 120 140 160 Real GDP (billions of dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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