Step 1: Short-Run Equilibrium The following graph shows an aggregate demand (AD) curve and a short-run aggregate supply (SRAS) curve for an economy. Suppose that the economy is initially in a short-run equilibrium: at PE, and Real GDP is 25 trillion. Suppose that at some point, the price increases to P*. PRICE LEVEL 'a 0 5 10 10 15 20 25 30 SRAS AD 95 35 40 45 50 60 REAL GDP (Trillion Dollars) (?) At P*, there is of $ output, and consumers trillion goods. As a result, the price level firms consumption.

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