Assignment:
The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for the United States are as follows. The schedules show the GDP price deflator (P) versus real GDP (Q), with Q measured in trillions of constant dollars.
|
P
|
AD
|
AS
|
ASLR
|
|
90
|
24
|
16
|
18
|
|
100
|
22
|
18
|
18
|
|
110
|
20
|
20
|
18
|
|
120
|
18
|
22
|
18
|
|
130
|
16
|
24
|
18
|
|
140
|
14
|
26
|
18
|
1. Graph the AD, AS, and ASLR curvesin the same diagram. Be sure to label the curves and the axes. Indicate potential output (Qf) on the Q axis.
2. Explain the difference in shape between the AS and ASLR curves in general. Note: "in general" means not just for this economy but for any economy.
3. State the general conditions for short-run equilibrium and for long-run equilibrium. Which one implies the other? Note: "general" means not just for this economy but for any economy.
4. What is U.S. equilibrium price level in the short run? Explain your answer. What is U.S. Qin the short run? Explain your answer. Show this short-run equilibrium price and output on the graph.Suppose that P is initially at 130. This implies that there is either excess demand or excess supply-which one? And what is its amount? Then explain the process of eliminating the excess demand or supply, that is, the process to reach short-run equilibrium.
5. What is U.S. long-run equilibrium GDP (Q)? Explain your answer. Assuming that the AD curve does not shift, what is the long-run equilibrium price level (P)? Explain your answer. Beginning at short run equilibrium, describe the process to long-run equilibrium.