Suppose the Potential Level of Real GDP for a Hypothetical

question 18

Essay

Suppose the potential level of real GDP for a hypothetical economy is $160 and the price level (P) initially is 200.Use the following short-run aggregate supply schedules to answer the questions. (a) What will be the short-run level of real GDP if the price level rises unexpectedly from 200 to 210 because of an increase in aggregate demand? Falls unexpectedly from 200 to 190 because of a decrease in aggregate demand? Explain each situation.(b) What will be the long-run level of real GDP when the price level rises from 200 to 210? Falls from 200 to 190? Explain each situation.

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Definitions:

Journal Entry

A record of financial transactions entered in a journal, a fundamental part of the double-entry bookkeeping system.

Carrying Value

Carrying value, or book value, is the net amount at which an asset or liability is valued on a balance sheet, factoring in its original cost minus depreciation, amortization, or impairment costs.

Retirement

the point in time when an individual chooses to leave the workforce permanently.

Gain Or Loss

The positive or negative financial result obtained from an investment, sale of assets, or other transactions, compared to the original cost.