7. From the short run to the long run Aa Aa The following graph shows the econom

Question

7. From the short run to the long run Aa Aa The following graph shows the economy in long-run equilibrium with real GDP equal to $10 billion and a price level of 100. PRICE LEVEL 200 New AS or AD curVE LRAS 160 SR eq 120 SRAS LR eq 80 40 0 2 46 8 10 12 14 16 18 20 INCOME, OUTPUT [Billions of dollars) Help ClearALI Suppose the Federal Reserve increases the money supply. Use the green line (triangle symbols) to show the new position of the affected curve on the graph. (Note: The new curve must pass through at least one of the grey stars and be parallel to the original curve. Before submitting your answer, mouse over the new line to ensure that the slope is the same as the original curve.) On the graph, use the black point (X symbol) to indicate the short-run equilibrium, and then place the red point cross symbol) to indicate the new long-run equilibrium. Dashed drop lines will automatically extend to both axes.

Explanation / Answer

supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted.

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