a)
Whether the economy operates at P1 and Y1 in short-run macroeconomic equilibrium.
a)
Explanation of Solution
Yes, the economy operates at P1 and Y1 in short-run macroeconomic equilibrium because the economy operates at a point that lies at the intersection of short-run aggregate
Introduction: An economy of the country is a system of trade through which wealth is made and used in the country, such as consumption and production of goods.
In short-run
b)
Whether the economy operates at P1 and Y1 in long-run macroeconomic equilibrium.
b)
Explanation of Solution
No, the economy operating at P1 and Y1 is not in long-run macroeconomic equilibrium because the short-run equilibrium only occurs at a level or point where the aggregate level of output would not be equal to the potential output. But in this case, it occurs where both levels of output (aggregate and potential) are equal.
Introduction: An economy of the country is a system of trade through which wealth is made and used in the country, such as consumption and production of goods.
In short-run macroeconomics, wages and prices do not impact the economic conditions but the period of long-run macroeconomics affects the economic conditions.
c)
The gap exists in the economy.
c)
Explanation of Solution
It is an inflationary gap because, in the economy which is operating at P1 and Y1, a difference exists between the current level of real
Introduction: An economy of the country is a system of trade through which wealth is made and used in the country, such as consumption and production of goods.
In short-run macroeconomics, wages and prices do not impact the economic conditions but the period of long-run macroeconomics affects the economic conditions.
d)
What would happen to the size of the output gap in the long run when the economy operates at P1 and Y1?
d)
Explanation of Solution
The size of the output gap, in the long run, will decrease and approach zero when the economy operates at P1 and Y1 because the economy runs at its inefficient rate.
Introduction: An economy of the country is a system of trade through which wealth is made and used in the country, such as consumption and production of goods.
In short-run macroeconomics, wages and prices do not impact the economic conditions but the period of long-run macroeconomics affects the economic conditions.
Chapter 19 Solutions
Krugman's Economics For The Ap® Course
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