3. The short-run and long-run supply response to a change in the price level

The following graph represents the aggregate supply (ASAS) curve based on an expected price level of 120. The economy's potential GDP level is $9 trillion.

Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 160.

Show the short-run effect of the unexpectedly high price level by dragging the curve or moving the point to the appropriate position.

Note: To move the curve, select and drag any part of the curve except the point. To move the point, select and drag the point along the curve. If you want to move both, first move the curve, and then move the point. The curve and point will snap into position, so if you try to move one of them and it snaps back to its original position, just try again and drag it a little farther.

\fCENGAGE | MINDTAP Homework: Bringing in the Supply Side: Unemployment and Inflation? Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. 240 200 AS Potential GDP 160 AS 120 PRICE LEVEL BO 40 Potential GDP 12 15 18 REAL GDP (Trillions of dollars)