Price Level LRAS SRAS 125 E, 120 E, E, AD, AD, 14 16 Real GDP per Year (S in Tri

Question

Price Level LRAS SRAS 125 E, 120 E, E, AD, AD, 14 16 Real GDP per Year (S in Trillions) In the above figure, if the economy is in equilibrium at E1, then ducing below its potential long-run equilibrium at full employment. economy is producing above its potential long-run equilibrium at full employment. A) the economy i C) there is an inflationary gap in the economy D) the economy is in a period of high inflation. 5) The long-run effect of an increase in the money supply when starting from full emplo is to A) increase real GDP only B) increase the price level only. C) increase both real GDP and the price level. D) increase real GDP as the price level increases too. 6) An appreciation of the U.S. dollar occurs when A) the international price of the dollar falls. B) the intermational price of the dollar rises. C) the U.S. demand for foreign currencies increases. D) the supply of dollars in international markets increases

Explanation / Answer

14) A. The economy is at E=14 which is below full employment level=16

15)B. When money supply imcreases and econony is at full employment level then only prices will increase

16)B. When dollar value or price increases then US dollar appreciates.

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