Consider an economy with the following aggregate demand (AD) and short-run aggregate supply

(SRAS) schedules. Decision makers have previously made decisions anticipating that the price level during the current period will be P105.

a. Indicate the quantity of GDP that will be produced during the period.

b. Is it a long-run equilibrium level of GDP? Why or why not?

c. How will the unemployment rate during the current period compare with the natural rate of unemployment?

d. Will the current rate of GDP be sustainable into the future? Why or why not?

*1. Explain how and why each of the following factors would influence current aggregate demand in the United States:

a. increased fear of recession

b. increased fear of inflation

c. rapid growth of real income in Canada and Western Europe

d. a reduction in the real interest rate

e. a higher price level (Be careful.)
*2. Indicate how each of the following would influence U.S. aggregate supply in the short run:

a. an increase in real wage rates

b. a severe freeze that destroys half the orange trees in Florida

c. an increase in the expected rate of inflation in the future

d. an increase in the world price of oil, a major import

e. abundant rainfall during the growing season in agricultural states