Assume that the United States economy is currently operating at the full employment level of real...

Assume that the United States economy is currently operating at the full employment level of real gross domestic product with a balanced budget.

1. Draw a correctly labeled graph of aggregate demand, short-run aggregate supply, and long-run aggregate supply, and show each of the following in the United States.

a Current output and price level, labeled as Y1 and PL1, respectively

b. Full-employment output, labeled as Y1

Expert Solution

The economy is in the full employment output when the current real GDP equals the potential real GDP, the current real GDP is determined where the aggregate demand equals the short run aggregate supply. The potential GDP is indicated by the vertical long run aggregate supply curve. So the economy is to be in full employment level, the aggregate demand, short run aggregate supply and the long run aggregate supply must be equal. Here the current level output is same as the full employment level of output.

Rahul Sunny answered 2 years ago

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