Suppose the aggregate demand and short-run aggregate supply schedules for an economy whose

potential output equals $2,700 are given by the table.

Draw the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves.

State the short-run equilibrium level of real GDP and the price level.

Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?

Now suppose aggregate demand increases by $700 at each price level; for example, the aggregate quantity of goods and services demanded at a price level of 0.50 now equals $4,200. Show the new aggregate demand curve, state the new short-run equilibrium price level and real GDP, and state whether there is an inflationary or a recessionary gap and give its size.

Price

0.50

0.25

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