Question

Discuss the results of aggregate demand increasing more than potential GDP and the results where aggregate demand curve increase less than potential GDP

Answer 1

( when Aggregate or + LRAS SRAS AD " Aggregate demand is more than Potential GDP? the diagram, potential level of Occurs output at baint yf demand when aggregate is increasing more than a potential GDP then equilibrium bice occurs at point E. At point , Level the actual lenel of GDP at y' is more than potential level of Gol and there is inflationary gap in economy. Unemployment rate is below the naturale xf Real appt lend when economy is in inflationary gap. Inflationary cuj when Aggregate demand increases less than potential of . GOP level? LRAS The actual SOP occurs in the economy at point Es which is below the full employment lend of GDP yf and this leads to Len Recessionary gap in the economy. This increases rate unemployment above its natural SRAS Price rate level. Y yf Recessionary Gap