Instructions: You should draw your own AD/AS graph which you can then embed into your post. Your graph needs to be clearly labeled and explained in some detail. Your graph must include an aggregate demand (AD) curve, a short run aggregate supply (SRAS) curve, and a long run aggregate supply curve (LRAS, Potential GDP) curve. You should label both axes of the graph. Identify the current price level using the GDP deflator on the vertical axis and the level of real GDP on the horizontal axis. Illustrate the current state of the economy relative to real potential GDP What is the output gap? How big is the gap between actual and potential real GDP?

Suggestions/Hints:

Please draw your graph rather than cut and paste from an outside source. You can see the example below. Graphs that are simply copy and pasted from other sources including your text will be penalized at least 4 points.

In Q3 of 2022 the price level is about 128.2 with a base year of 2012. Actual real GDP is about $20.172 trillion and potential real GDP is about $20.2 trillion. The gap between actual and potential real GDP which is called the “output gap” is roughly $28 billion.