### Equilibrium in Aggregate Demand-Aggregate Supply ModelThe figure below illustrates equilibrium in an aggregate demand-aggregate supply model. The graph represents the relationship between the aggregate demand (AD) and the short-run aggregate supply (AS).#### Diagram Explanation**Title: Figure 10.3**- **X-Axis**: Real GDP- **Y-Axis**: Price Level- **Lines/Curves**: - **AS**: Initial aggregate supply curve. - **AS'**: New aggregate supply curve indicating a rightward shift. - **Aggregate Demand**: Downward-sloping curve depicting aggregate demand.#### Equilibrium Points- **Initial Equilibrium (e)**: - At Price Level $ P_1 $ - Real GDP $ Y_1 $- **New Equilibrium (e')** after the shift from AS to AS' occurs: - At Price Level $ P_2 $ - Real GDP $ Y_2 $#### Situation ContextThe shift from the initial aggregate supply curve (AS) to the new aggregate supply curve (AS') is likely to occur under certain economic conditions. Choose the correct scenario based on the provided options.### Multiple-Choice Question**When is the shift from AS to AS' likely to occur?**a. The aggregate demand curve intersects the short-run aggregate supply curve at the potential output.b. The actual output is more than the potential output.c. The actual price level is higher than expected.d. The actual price level is lower than expected.e. The unemployment rate is lower than the natural rate.Choose the correct option and analyze the economic reasoning behind it.

Answer: d ( the actual price level is lower than expected) Explanation: If the actual price level is…

The figure below shows equilibrium in an aggregate demand-aggregate supply model. In this figure, the shift from AS to AS' is likely to occur when: Figure 10.3 Price level AS AS' P Aggregate demand Real GDP O a. the aggregate demand curve intersects the short-run aggregate supply curve at the potential output. O b. the actual output is more than the potential output. O . the actual price level is higher than expected. O d. the actual price level is lower than expected. O e. the unemployment rate is lower than the natural rate.

The figure below shows equilibrium in an aggregate demand-aggregate supply model. In this figure, the shift from AS to AS' is likely to occur when: Figure 10.3 Price level AS AS' P Aggregate demand Real GDP O a. the aggregate demand curve intersects the short-run aggregate supply curve at the potential output. O b. the actual output is more than the potential output. O . the actual price level is higher than expected. O d. the actual price level is lower than expected. O e. the unemployment rate is lower than the natural rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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