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3. (20 points) The following table presents the values of the real and potential GDP and the price level of a country in 2012 and
3. (20 points) The following table presents the values of the real and potential GDP and the price level of a country in 2012 and 2013. Year Potential Real GDP Real GDP Price Level 2020 $12 8 trillion $12.8 trillion 100 2021 $15.0 trillion $14.6 trillion 104 a. (3 points) Draw ONE diagram using the LRAS-SRAS-AD curves to illustrate the equilibrium in the country in 2020 and 2021 respectively. b. (3 points) Specify whether the equilibrium in 2020 and 2021 is a long-run equilibrium or short-run equilibrium or both c. (3 points) If any of the curves has shifted from 2020 to 2021, propose a factor that has led to the shift of the curve. d. (4 points) In 2021, if there are no further shocks to the economy nor any intervention from the government or the Central Bank, will the real GDP and the price level change over time? If no, explain why not. If yes, explain why and which curve(s) in the diagram will shift. e. (3 points) Draw the new curve(s) and the new equilibrium (if any) in the diagram you have drawn and label the new long-run and the short-run equilibrium as E'. f. (4 points) Propose a macro-economic policy that could raise the real GDP of the country to its long-run potential level (i.e., $15.0 trillion). State clearly the policy, which curve (LRAS, SRAS, AD) would shift, and the direction of the shift. Explain carefully how the policy you propose would lead to the shift of the curve(s) in the direction you have stated
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