The economy of Langoria is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130.
The economy of Langoria is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
Confused and not sure how to answer
Transcribed Image Text:The economy of Langoria is currently in a state of long-run equilibrium in which the economy is
producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price
level is 130.
PRICE LEVEL
180
170
160
150
130
120
110
Changes in a Self-Regulating Economy
100
0
1
AD
1
SRAS
AD
LRAS
2
3
4
REAL GDP (Trillions of dollars)
5
6
7
(?)
Suppose there is a sudden increase in government purchases that causes a shift in aggregate
demand from AD1 to AD2. As a classical economist from Langoria, you explain that the shift in
aggregate demand creates
Y You also explain that
will be affected in the short run.
You note that such a gap leads to an unemployment rate that is
unemployment rate. This means that wages are certain to
Y curve shifts to the
Finally, you explain that in the long run,
the natural
. As wages change, the
until Real GDP equals Natural Real GDP.
will be affected.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education