Consider an economy with the following aggregate demand (AD) and short-run aggregate supply (SRAS) schedules. Decision-makers have previously made decisions anticipating that the price level during the current period will be P 105 . a. Indicate the quantity of GDP that will be produced during the period. 5,100 b. Is it a long-run equilibrium level of GDP? Why or why not? No. The actual price level will be 110, which is higher than expected. c. How will the unemployment rate during the current period compare with the natural rate of unemployment? Unemployment rate will be lower than the natural rate due to higher price levels improving the profit margin, reducing real wage rates, and expansion of output during short run. d. Will the current rate of GDP be sustainable into the future? Why or why not? No. Real wages will increase due to the ability to negotiate existing contracts. AD 105 Price Level SRAS 105 6300 90 4500 6000 95 4800 5700 100 5100 5400 105 5400 5100 110 5700 4800 115 6000 This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 2.
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