PRICE LEVEL 200 180 160 140 120 100 + 80 60 40 20 0 0 AD 1 Step 2: Two PPFs Real GDP and Natural Real GDP SRAS 2 LRAS 6 3 4 5 7 REAL GDP (Trillions of dollars) 8 9 10 The short-run equilibrium output level is $7 trillion, and the economy is operating. exists in the labor market of this economy. Consider the following scenario: The economy is in an inflationary gap producing an outs at a long-run equilibrium with a recessionary gap in an inflationary gap . As a result, pater than the Natural Real

Real wage X Figure 5: The supply side of the economy Output WS PS Consider Figure 5, which represents the supply side of the economy. Which point on the diagram, matches this description of what is happening: Real wages are on a rising trend

With the passage of time, which of the following will help direct this economy in Figure 10-21 toward its potential long-run rate of output (e1 to E2)? Figure 10-21 Price Level ti LRAS E₂ SRAS, SRAS: AD₂ AD₁ Y, Y₁ Goods and Services (Real GDP) Output is initially less than long-run capacity O lower interest rates that will stimulate AD and lower resource prices that will increase SRAS O higher interest rates that will reduce aggregate demand and higher resource prices that will reduce SRAS lower interest rates and higher resource prices, both of which will stimulate aggregate demand O higher interest rates that will reduce SRAS and lower resource prices that will stimulate aggregate demand

40 AD3 38 - AS 36 - AD 2 34 - 32- AD, 30 - 28 - 26 24 - 22 - 20 4 10 12 14 16 18 20 Real Output (quantity in billions per year) Suppose the economy is at full employment when AD = AD3. a. The GDP gap when the demand curve is at AD1 is billion b. The shortfall when the demand curve is at AD1 is billion Price Level (average price)

1. Climate changes and the Ukrainian-Russian war disrupt global output. Malaysia imports agricultural products from overseas. Assume that the economy is initially operate at its full employment. Based on above situation, explain the effects of this on the economy in the short run. Use AD-AS diagram in your illustration.

Which of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below?   A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.