Read each direction below carefully and make certain you fully label any graphs, including equilibrium price level and aggregate output.

(a) An economy is currently operating in long-run equilibrium. Draw a graph of its short-run aggregate supply, aggregate demand, and long-run aggregate supply. Label the equilibrium price level and the full-employment output Y_F.

(b) If the natural rate of unemployment in this economy is 4 percent and the frictional unemployment rate is 3 percent, what must be the structural unemployment rate?

(c) Draw a new graph that shows an economy operating with an inflationary gap. Include the SRAS, AD, and LRAS. Label the equilibrium price level, real output level, and full employment output Y_F.

(d) The economy from part (c) is in short-run equilibrium. If the aggregate quantity of output demanded in this economy is $3 trillion, what must the aggregate quantity of output supplied?

(e) Is the long-run aggregate supply for this economy below, equal to, or above $3 trillion? Explain.

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a In longrun equilibrium the shortrun aggregate supply SRAS aggregate demand AD and longrun aggregat... View the full answer