Consider an economy with the following aggregate demand (AD) and aggregate supply (AS) schedules. These schedules reflect the fact that, prior to the period we are examining, decision makers entered into contracts and made choices anticipating that the price level would be P 105.
AD 105 (in trillions) PRICE LEVEL SRAS 105 (in trillions)
$5.1 95 $3.5
4.9 100 3.8
4.7 105 4.2
4.5 110 4.5
4.3 115 4.8
A.) Indicate the quantity of GDP that will be produced and the price level that will emerge during this period?
B.) Is the economy in long run equilibrium? Why or Why not?
C.) How will the unemployment rate during the current period compare with this economy's natural rate of unemployment?
D.) What will tend to happen to resource prices in the future? How will this affect the equilibrium rate of output?
E.) Will the rate of GDP produced during this period be sustainable into the future? Why or Why not?