The SRAS is horizontal at a price level of 3.
-According to the AD-AS model,the economy depicted above has a short-run equilibrium output of ___________ and a(n)___________ gap equal to ___________.

Question

Quizplus · Accepted Answer

Since the SRAS is horizontal at a price level of 3, the short-run equilibrium output is determined by the point at which the aggregate demand curve intersects the SRAS curve, which is at Y = 600.

At this output level, the economy is producing below its potential, as the LRAS curve intersects the aggregate demand curve at a higher output level. This means that there is a recessionary gap, which is the difference between the actual output and potential output, equal to 50 (potential output - actual output = 650 - 600 = 50).

Therefore, the correct answer is C, with a short-run equilibrium output of 600 and a recessionary gap of 50.

The SRAS Is Horizontal at a Price Level of 3