00:01
So, in this question i guide you through the analysis and the answer of the questions conceptually.
00:05
So coming to the graph, so aggregate demand, ad is the downward sloping curve, short run aggregate supply is an upward sloping curve and the long run aggregate supply is vertical at the potential gdp level.
00:20
Now label the x -axis real gdp and the y -axis as the price level and plot the ad curve intersecting the sras and lras curve.
00:32
Now after that coming to the short run equilibrium, so here you have to find the intersection of the ad and sras curves.
00:40
This point gives you the short run equilibrium price level and real gdp.
00:45
Next is long run equilibrium.
00:47
Long run equilibrium occurs where ad intersect lras.
00:51
In this case it's where ad intersect lras at the potential gdp level which is $450 billion.
01:00
Now coming to the inflationary or recessionary gap, so if the short run equilibrium real gdp is less than potential gdp there is a recessionary gap and if the short run equilibrium real gdp is more than potential gdp then there is an inflationary gap...