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The economy is in short-run equilibrium when

A. the AD and AS curves intersect at potential output Y*.

B. the AD and AS curves intersect at a level of real GDP that is above or below Y*.

C. the AD and AS curves become vertical.

Ā 

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Romarie Khazandra Marijuan
Romarie Khazandra MarijuanLv10
8 Nov 2020

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Related questions

A typical AS curve has three parts: a flat, horizontal portion at low levels of output, a middle section with a more-or-less gentle upward slope, and a steep or vertical portion at high levels of output. Let's consider two of these parts individually, the horizontal portion and the vertical portion.

A. Imagine that AS and AD intersect in the horizontal portion of the AS curve. In this case, if aggregate demand increases, how does the output of the economy change? Does demand drive the economy here? (5 points)

B. Imagine that AS and AD intersect in the vertical portion of the AS curve. In this case, if aggregate demand increases, how does the output of the economy change? Does demand drive the economy here? (5 points)

C. Imagine that AS and AD intersect in the vertical portion of the AS curve. Assume a technological breakthrough increases the full-employment level of RGDP and shifts the AS curve to the right. In this case, when aggregate supply increases, how does the output of the economy change? Does supply create its own demand? (5 points)

What do economists believe is the relationship between the price level (P) and real output (Y)
in the short run and the long run, and how does this answer differ depending on which time
frame is being considered? How are these beliefs reflected visually in the AS-AD model? In
particular, why are the SRAS and LRAS curves upward sloping and vertical, respectively?

Assume that initially economy is in the long-run equilibrium. For each of the following scenarios, say what will happen in the long run.

1. Because of a negative demand shock output in the short run is below original potential output. In the long run

A.) Equilibrium is achieved at a higher level of potential output.

B.) AD shifts to the left and brings economy back to original potential output.

C.) SRAS shifts to the left and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) Equilibrium is achieved at a lower level of potential output.

F.) SRAS shifts to the right and brings economy back to original potential output. .


2. Because of a negative temporary supply shock current output is below original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) New long-run equilibrium is achieved at a higher level of potential output.

C.) AD shifts to the left and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) New long-run equilibrium is achieved at a lower level of potential output.

F.) SRAS shifts to the left and brings economy back to original potential output. .

3. Because of a positive demand shock current output is above original potential output. In the long run

A.) AD shifts to the left and brings economy back to original potential output.

B.) New long-run equilibrium is achieved at a higher level of potential output.

C.) AD shifts to the right and brings economy back to original potential output.

D.) New long-run equilibrium is achieved at a lower level of potential output.

E.) SRAS shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a lower level of potential output.Ā 


4. Because of a positive temporary supply shock current output is above original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) AD shifts to the left and brings economy back to original potential output.

C.) New long-run equilibrium is achieved at a lower level of potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) SRAS shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a higher level of potential output. .


5. Because of a positive permanent supply shock current output is above original potential output. In the long run

A.) SRAS shifts to the right and brings economy back to original potential output.

B.) SRAS shifts to the left and brings economy back to original potential output.

C.) AD shifts to the right and brings economy back to original potential output.

D.) New long-run equilibrium is achieved at a lower level of potential output.

E.) New long-run equilibrium is achieved at a higher level of potential output.

F.) AD shifts to the left and brings economy back to original potential output. .

6. Because of a negative permanent supply shock current output is below original potential output. In the long run

A.) New long-run equilibrium is achieved at a lower level of potential output.

B.) SRAS shifts to the left and brings economy back to original potential output.

C.) SRAS shifts to the right and brings economy back to original potential output.

D.) AD shifts to the right and brings economy back to original potential output.

E.) AD shifts to the left and brings economy back to original potential output.

F.) New long-run equilibrium is achieved at a higher level of potential output.

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