The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3

-Refer to Figure 8.3. If AS1 and AD1 represent the initial aggregate demand and supply in the economy, the long-run equilibrium real GDP will be _____ billion.
A) $100
B) $200
C) $300
D) $400
E) $500

Question

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3
 
-Refer to Figure 8.3. If AS1 and AD1 represent the initial aggregate demand and supply in the economy, the long-run equilibrium real GDP will be _____ billion.
A) $100 
B) $200 
C) $300 
D) $400 
E) $500

Quizplus · Accepted Answer

The long-run equilibrium real GDP is the intersection of the long-run aggregate supply (LAS) curve and the aggregate demand (AD) curve. Since AS1 and AD1 intersect at a price level of $200 billion, this is the initial equilibrium point. However, due to a decrease in aggregate demand, the AD curve shifts leftward to AD2. This new equilibrium point occurs where AD2 intersects with the LAS curve, which is at a real GDP of $300 billion. Therefore, the long-run equilibrium real GDP will be $300 billion.

The Figure Given Below Represents the Equilibrium Real GDP and Price