Question

1. The full employment output level is the maximum amount of output that the economy can produce when all its resources are fully employed, or its potential output level. The intersection of AD = AS and the vertical line are the same. This intersection of all three curves is the potential real GDP and the natural rate of unemployment.

   1. True
   2. False

An inflationary gap exists when the macro economy is in equilibrium at more than the potential output of the economy because aggregate demand is so high that the economy is operating temporarily beyond its long-run capacity.In other words, the AD=AS occurs to the right of the vertical long-run supply curve.

1. True
2. False

Answer 1

I False LRAS AS pa This Intersection is the Natural level of Output Natural level of output is asociated AD with natural level of unemployment y (Natural rate of unemployment is the intersection of wage setting & Peure resting relation) From Em natural relil of unemployment, Us, we can get natural level of employment re whene 2 = Labor force Ug = V = 1-N = '-N who N = Employment level. - Not = (1- Un) L. And from natural level of employment we get Natural level of output ( Intersection defined in question) In = F (No). LRAS • Yn = Potential Output • Inflationary Gap Y 1n. Inflationary Gap . Y = Actual GDP D] Poue rue 1 AS A AS AD