Below, you are provided with the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves....

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Below, you are provided with the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. You will Part 4: Based on your answer to Part 3, would contractionary or expansionary monetary policy be more desirable? Part 5: If th

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Answer 1

Answer #1

Part 1: Ans: The value of potential GDP = 600 billions

Explanation:

The value of potential GDP is determined where aggregate demand curve ( AD) curve and long run aggregate supply ( LAS) curve intersects with each other.

Part 2: Ans: The value of real GDP = 650 billions

The value of real GDP is determined where aggregate demand curve ( AD) curve and short run aggregate supply ( SAS ) curve intersects with each other.

Part 3: Ans: The economy is experiencing an expansionary gap.

Explanation:

When , the real GDP > the potential GDP , then there will be an expnasionary gap in the economy.

Part 4: Ans: Contractionary monetary policy would be more desirable.

Explanation:

The central bank of a country adopts a contractionary monetary policy to control inflation by reducing money supply in the economy.

Part 5: Ans: The Federal Reserve should conduct open market sales.

Part 6 : Ans: The Federal Reserve should raise the reserve requirement.

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Answer 2

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