The table above shows Purplelandʹs economy aggregate demand and supply schedules. Purplelandʹs potential GDP is $675 billion.
a) Plot the aggregate demand curve, the short-run aggregate supply curve, and the long-run aggregate supply curve.
b) What are the short-run equilibrium real GDP and price level in Purpleland?
c) What is the long-run equilibrium real GDP?
d) Is Purplelandʹs short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?
e) Suppose aggregate demand increases by $150 billion. Plot the new aggregate demand curve. How do real GDP and the price level change in the short run?
f) Is Purplelandʹs new short-run macroeconomic equilibrium a full-employment equilibrium, below
full-employment equilibrium, or above full-employment equilibrium? What is the recessionary gap if any)? What is the inflationary gap if any)?
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