7. (LO 4) Table 5.3 shows the aggregate demand for the economy of Itera. Its potential GDP (LAS) is $800.

a) Draw the aggregate demand curve and the Potential TABLE 5.4 GDP (LAS) curve on Figure 5.26.

b) What is the equilibrium level of GDP and the price index?
GDP: $ Price index:

c) Is there a recessionary or inflationary gap in Itera?
Of how much?
(Recessionary/inflationary)
gap of $

d) If aggregate demand in Itera were to increase by $150, draw in the new (AD2) curve in Figure 5.26.

e) What is the new equilibrium level of GDP and the price index?
GDP: $ Price index:

f ) Is there now a recessionary or inflationary gap in Itera? How much?
(Recessionary/inflationary)
gap of $