The graph shows an economy's aggregate supply and potential GDP. On the graph, draw an aggregate demand curve when the economy is at an above full-employment equilibrium. Label itAD. Draw a point at the above full-employment equilibrium. Draw a horizontal arrowat the equilibrium price levelthat shows the gap between actual real GDP and potential GDP. >>>Draw only the objects specified in thequestion. The image displays a graph depicting an economy's aggregate supply (AS) and potential GDP. ### Graph Details:- **Axes**: - The vertical axis represents the "Price level (GDP price index, 2012=100)." - The horizontal axis shows "Real GDP (trillions of 2012 dollars)."- **Lines**: - A blue line labeled "AS" (Aggregate Supply) slopes upward across the graph, representing the aggregate supply curve. - A vertical magenta line represents "Potential GDP," indicating the economy's potential output level.### Task Instructions:1. **Draw an Aggregate Demand Curve**: - Add an aggregate demand curve labeled "AD" when the economy is at an above full-employment equilibrium.2. **Mark Above Full-Employment Equilibrium**: - Plot a point on the graph at the above full-employment equilibrium.3. **Indicate the GDP Gap**: - Include a horizontal arrow at the equilibrium price level depicting the gap between actual real GDP and potential GDP.The user is guided to use specific tools and instructions to add the components to the graph: "Select," "Line," "Point," and "Double Arrow," ensuring only the specified tasks are completed.

Full Employment equilibrium refers to a point where full resource utilization is achieved. It is a point where both AS and AD intersect each other. At this level, there is no involuntary unemployment also there are no resources left unused.AD shows the aggregate demand within an economy. It depicts the full utilization of all the resources available.In the above diagram, the full employment equilibrium is drawn where the AD curve intersects the AS curve at point E. Also, it is observed that AD1 intersects the AS curve at point E1 where the economy operates at less than full employment equilibrium. The gap between current and potential GDP leads to unemployment within the economy. This gives rise to a deflationary gap. When demand is less than its supply it pushes the economy into less than full employment level.Thus in the above problem, it can be concluded that full employment is reached where AD intersects with AS as depicted in the above diagram.

Answered: The graph shows an economy's aggregate…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The graph shows an economy's aggregate supply and potential GDP.

On the graph, draw an aggregate demand curve when the economy is at an above full-employment equilibrium. Label it

Draw a point at the above full-employment equilibrium.

Draw a horizontal arrow

at the equilibrium price level

that shows the gap between actual real GDP and potential GDP.

>>>

Draw only the objects specified in the

question.

The image displays a graph depicting an economy's aggregate supply (AS) and potential GDP.

### Graph Details:
- **Axes**:
- The vertical axis represents the "Price level (GDP price index, 2012=100)."
- The horizontal axis shows "Real GDP (trillions of 2012 dollars)."

- **Lines**:
- A blue line labeled "AS" (Aggregate Supply) slopes upward across the graph, representing the aggregate supply curve.
- A vertical magenta line represents "Potential GDP," indicating the economy's potential output level.

### Task Instructions:
1. **Draw an Aggregate Demand Curve**:
- Add an aggregate demand curve labeled "AD" when the economy is at an above full-employment equilibrium.

2. **Mark Above Full-Employment Equilibrium**:
- Plot a point on the graph at the above full-employment equilibrium.

3. **Indicate the GDP Gap**:
- Include a horizontal arrow at the equilibrium price level depicting the gap between actual real GDP and potential GDP.

The user is guided to use specific tools and instructions to add the components to the graph: "Select," "Line," "Point," and "Double Arrow," ensuring only the specified tasks are completed.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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