The figure below is a part of the AD-AS model as a description of the current situation of aneconomy.PA=$10PYA=4000Ya) Find the short-run equilibrium (i.e. the real output and the price level thereof) of thiseconomy.b) If the natural level of output is 3500, which one will be higher, the unemployment rateat point A, or the natural unemployment rate? Explain.c) Give two reasons as to why the short-run aggregate supply is upward sloping.d)Suppose the government takes no action about the situation indicated above. Explain,with the help of a figure properly labeled, what will happen in this economy in the longrun.e) Describe the two kinds of macroeconomic policies that can be used in the situationdescribed before part c). Indicate clearly in your description whether each policy is tothe aggregate demand or aggregate supply or Further, give reason(s) as towhy the government may want to use these policies rather than doing nothing.

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a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping.

a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 35RQ: How is the natural rate of unemployment Illustrated in an AD/AS model?

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