Figure 30.5 shows the economy of Freezone. The aggregate demand curve is AD, and the short-run aggregate supply curve is SASA. Potential GDP is $300 billion.
In Figure 30

a. What are the price level and real GDP?
b. Does Freezone have an unemployment problem or an inflation problem? Why?
c. What do you predict 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?a

Transcribed Image Text:

SAS 140 130 SAS 120 110 g 100 AD 100 200 300 400 500 Real GDP (billions of 2002 dollars)