On a piece of graph paper draw a set of axes, such as those in the figure above,

Question

On a piece of graph paper draw a set of axes, such as those in the figure above, but do not draw the supply curves shown there. Instead, draw a long-run aggregate supply curve based on the assumption that the natural level of real output is $3,000 billion. What is the slope of the curve? At what point does it intersect the horizontal axis? Next draw a short-run aggregate supply curve based on the assumption that the expected level of inpout prices is 1.5. Where does this short-run aggregate supply curve intersect the long-run aggregate supply curve that you drew?

Just need an explanation of what it woudl look like?

Explanation / Answer

This curve is relatively

inelastic along the segment from point A to point B.1

At point A the price level is 0.5 and the

quantity of real domestic product demanded is $2,000 billion. Nominal aggregate demand at

point A thus is 0.5

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