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Assume that the full-employment GDP of a country is $750 and that the aggregate demand and aggregate supply are as shown below: a) Is this
Assume that the full-employment GDP of a country is $750 and that the aggregate demand and aggregate supply are as shown below:
a) Is this country in a long run or short run equilibrium? Explain how you know. b) Suppose that flooding hits parts of the country reducing its aggregate supply by $70. What will be the new values of equilibrium GDP and the price level? c) What type of gap will exist after the flooding? How do you know?
Aggregate Quantity Demanded | Price Index | Aggregate Quantity Supplied |
830 | 106 | 640 |
810 | 107 | 650 |
790 | 108 | 670 |
770 | 109 | 700 |
750 | 110 | 750 |
730 | 111 | 790 |
710 | 112 | 840 |
690 | 113 | 900 |
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