Question

1. The table shows Aggregate Demand and Short-run Aggregate Supply for a country in which Potential GDP is $1,050 billion

   Price Level	Real GDP Demanded	Real GDP Supplied
   100	$1,150	$1,050
   110	$1,100	$1,100
   120	$1,050	$1,150
   130	$1,000	$1,200
   140	$950	$1,250
   150	$900	$1,300
   160	$850	$1,350

2. 1. Graph the Aggregate Demand and Short-run Aggregate Supply curves
   2. Does this country have an inflationary gap or a recessionary gap? What is the magnitude of the gap as a % of Potential GDP?
   3. If Aggregate Supply were to decrease by $200 at every price level, what would be the new Price Level and quantity of Real GDP? Does the economy have an inflationary gap or a recessionary gap?

Answer 1

de --- AS - - 120 - Potential GDP= Ploso billion. (as The AD represents Aggregate 16. demand come and As a represente Aggregate supply Curve of the econonny. (by The equilibrium occares at lo point o where equilibrium loot price tend = llo and équilibrinon real Got = 11oo. o eso you sunce potential GDP = loso Thus Actual GDP > potential app, thus, Inflationary gap. Magnitude e 11oo-loso x 100 = 4.76.1 i Ad گی دو دا ما را دوا كدا و هوا و the econoney is in ( This will shift the As aume left wards to As' and new equilibrium occurs at t h ere bruce lend= 130 and Quantity = 1000 < loso (Patential GDP) Thus the economy has Recessionary gap.