Using the graphs, answer the following questions. a. How would you describe an e

Question

Using the graphs, answer the following questions.

a. How would you describe an economy operating where the short run equilibrium is Y*? What would be a corresponding point on the PPC?

b. If the economy were operating at Y2, how would you describe the economy? What point would this condition be represented on the PPC?

c. If the economy were operating at Y1, how would you describe the economy? What point would this condition be represented on the PPC?

d. If the economy were producing at Y2, what would happen in the long run? Why?

Thank you for your help!!!

Explanation / Answer

a)The Long-Run Aggregate Supply Curve is vertical at full-employment GDP with respect to the price level. In the long-run the quantity of output supplied depends on the economy's resource endowment, technology, and its governing institutions. The price level does not affect these variables in the long-run. b)The short-run aggregate supply (SAS) curve is considered a valid description of the supply schedule of the economy only in the short-run. The short-run is the period that begins immediately after an increase in the price level and that ends when input prices have increased in the same proportion to the increase in the price level.this happens in high GDP countries.

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