Chapter 19, Problem 2FRQ

To determine

The aggregate demand and aggregate supply on the graph when the economy is in long-run macroeconomic equilibrium.

Explanation of Solution

  

The graph shows the aggregate price level on the vertical axis and real GDP on the horizontal axis. In long-run macroeconomic equilibrium, the aggregate demand curve (AD) would slope downward as it increases with the decline in price but the short-run aggregate supply curve (SRAS) represented an upward slope because with the price increase the real GDP would also increase but the long-run average supply curve would remain fixed as a vertical line (LRAS) because it will not change with the price change.

Economics Concept Introduction

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.