Question

why not? 15. "The following chart indicates the aggregate demand (AD) and short-run aggregate supply (SRAS) schedules of decision- makers for the current period. Both buyers and sellers previ- ously anticipated that the price level during the current period would be P105 a. Indicate the quantity of GDP that will be produced during this period. b. Will it be a long-run equilibrium level of GDP? Why or why not? c. What will the relationship between the actual and natural rates of unemployment be during the period? Explain your answer. ADOS PRICE LEVEL SRAS105 90 95 4,500 4,800 5,100 7100 6,900 6,600 6,300 6,000 5,700 5,400 105 5,400 110 5,700 6,000 115

Answer 1

15 a) Quantity of GDP that will be produced during this period= Price level * Quantity level

                                                                                          = 105 * 5400 = 567,000

Note: anticipated price level in this period is 105

b) No, it will not be a long run equilibrium level of GDP since price level will fluctuate in the long run economy and hence this GDP will change. In this chart, only short run aggregate supply and aggregate demand are mentioned. No data related to long run economy is given.

c) Since in this period, aggregate demand is higher than the short run aggregate supply, production will be increased to meet the excess demand. As a result more people will be employed in the short run to meet the demand. Therefore, actual unemployment rate will fall but in the long run, natural unemployment will remain same.

Note: Natural unemployment rate will remain same as it generally corresponds with long run aggregate supply and in the long run AS=AD in order to attain the equilibrium level.