Question: In Freezone, shown in Figure 30.4, the aggregate demand curve is AD, potential GDP is $300 billion, and the short-run aggregate supply curve is &4SB.

In Freezone, shown in Figure 30.4, the aggregate demand curve is AD, potential GDP is $300 billion, and the short-run aggregate supply curve is &4SB.
In Figure 30.4,

a. What are the price level and real GDP?
b. Does Freezone have an unemployment problem or an inflation problem? Why?
c. What will happen in Freezone if the central bank takes no monetary policy actions?
d. What monetary policy action would you advise the central bank to take and what do you predict will be the effect of that action?

SASA 14 . 130 120 SAS 110 100 AD 0 100 200 300 400 500 Real GDP (bilions of 2002 dollars)

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