Refer to the figure below. Which of the points in the above graph are possible short-run equilibria? Price level (GDP deflator, 2000-100) O A and B O A and C O A and D O A, B, C, and D LRAS SRAS, SRAS AD₂ AD₁ Real GDP (trillions of 2000 dollars)

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**Economic Short-Run Equilibrium Analysis**

**Question:**
Refer to the figure below. Which of the points in the above graph are possible short-run equilibria?

- O A and B
- O A and C
- O A and D
- O A, B, C, and D

**Graph Explanation:**

The graph illustrates the interaction between aggregate demand and aggregate supply in the context of short-run economic equilibrium. The following components are displayed:

- **Price Level (GDP Deflator, 2000 = 100):** This is represented on the vertical axis, indicating changes in the overall level of prices in the economy.

- **Real GDP (Trillions of 2000 Dollars):** Shown on the horizontal axis, this measures the output of goods and services produced in the economy, adjusted for inflation to the year 2000.

- **Curves:**
  - **LRAS (Long-Run Aggregate Supply):** A vertical line indicating the economy's potential output when resources are fully employed.
  - **SRAS₁ and SRAS₂ (Short-Run Aggregate Supply Curves):** These upward sloping lines reflect how output responds to changes in the price level in the short run.
  - **AD₁ and AD₂ (Aggregate Demand Curves):** These downward sloping lines show the total demand for goods and services at varying price levels.

**Points of Intersection:**
- **Point A:** The intersection of SRAS₁ and AD₁.
- **Point B:** The intersection of LRAS and AD₁.
- **Point C:** The intersection of LRAS and AD₂.
- **Point D:** The intersection of SRAS₂ and AD₂.

**Possible Short-Run Equilibria:**
The potential points of short-run equilibrium are points where the SRAS curves intersect the AD curves. Based on the graph, these points would be:

- **Point A (SRAS₁ intersects AD₁)**
- **Point D (SRAS₂ intersects AD₂)**

Therefore, the correct answer is **A and D**.
Transcribed Image Text:**Economic Short-Run Equilibrium Analysis** **Question:** Refer to the figure below. Which of the points in the above graph are possible short-run equilibria? - O A and B - O A and C - O A and D - O A, B, C, and D **Graph Explanation:** The graph illustrates the interaction between aggregate demand and aggregate supply in the context of short-run economic equilibrium. The following components are displayed: - **Price Level (GDP Deflator, 2000 = 100):** This is represented on the vertical axis, indicating changes in the overall level of prices in the economy. - **Real GDP (Trillions of 2000 Dollars):** Shown on the horizontal axis, this measures the output of goods and services produced in the economy, adjusted for inflation to the year 2000. - **Curves:** - **LRAS (Long-Run Aggregate Supply):** A vertical line indicating the economy's potential output when resources are fully employed. - **SRAS₁ and SRAS₂ (Short-Run Aggregate Supply Curves):** These upward sloping lines reflect how output responds to changes in the price level in the short run. - **AD₁ and AD₂ (Aggregate Demand Curves):** These downward sloping lines show the total demand for goods and services at varying price levels. **Points of Intersection:** - **Point A:** The intersection of SRAS₁ and AD₁. - **Point B:** The intersection of LRAS and AD₁. - **Point C:** The intersection of LRAS and AD₂. - **Point D:** The intersection of SRAS₂ and AD₂. **Possible Short-Run Equilibria:** The potential points of short-run equilibrium are points where the SRAS curves intersect the AD curves. Based on the graph, these points would be: - **Point A (SRAS₁ intersects AD₁)** - **Point D (SRAS₂ intersects AD₂)** Therefore, the correct answer is **A and D**.
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