# Econ, aggregate-demand, short run/long run aggregate supply

## Description

The aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules for a given economy are as follows. The schedules show the GDP price deflator (P) versus real GDP (Q), with Q measured in trillions of constant dollars.

 P AD AS ASLR 100 9 5 5 110 8 6 5 120 7 7 5 130 6 8 5 140 5 9 5 150 4 10 5

1. Graph the AD, AS, and ASLR curves. Be sure to label the curves and the axes.

Hint: ASLR is at potential output (Qf).

2. Explain the difference in shape between the AS and ASLR curves in general.

Hint: in general means not just for this economy but for any economy.

3. State the general conditions for short-run equilibrium and for long-run equilibrium. Which one implies the other?

Hint: general means not just for this economy but for any economy.

4. What is the equilibrium price level for this economy in the short run? What is Q for this economy in the short run? Show the short-run equilibrium price and short-run equilibrium output on the graph. Suppose that P is initially at 150. This implies that there is either excess demand or excess supplywhich one? And what is its amount? Then explain the process of eliminating the excess demand or supply, that is, the process to reach short-run equilibrium.

5. What is long-run equilibrium GDP (Q) for this economy? Assuming that the AD curve does not shift, what is the long-run equilibrium price level (P) for this economy? Beginning at short-run equilibrium for this economy, explain the process to long-run equilibrium.