Consider the information provided in the following graph 140 LAS 130 SAS Price level (GDP deflator, 1997 = 100) 120 110 100 In the long run, money wage adjusts AD 900 950 1,000 1,050 1,100 1,150 Real GDP (billions of 1997 dollars) 1. What are the equilibrium levels of GDP and price in the short-run? 2. What are the equilibrium levels of GDP and price in the long-run? 3 . Suppose all firms expect to earn higher profit next year. What would happen to GDP and Price in the short-run? Show it on the graph. 4 . Following (3), will there be an inflationary gap or recessionary gap in the short-run? 5. Following (3), how will the economy return to its long-run equilibrium? Show on the graph? 6. How will the value of the following variables change compared with their original values in (2) in the long run (higher, lower, unchanged)? 1. Price level 2. Real GDP 3. Nominal Wage 4. Real Wage