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The economy of Bostonia is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level
The economy of Bostonia is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130. Changes in a Self-Regulating Economy 0 1 2 3 4 5 6 7 8 180 170 160 150 140 130 120 110 100 PRICE LEVEL REAL GDP (Trillions of dollars) AD 2 AD 1 SRAS LRAS Suppose there is a sudden increase in government purchases that causes a shift in aggregate demand from AD1 to AD2 . As a classical economist from Bostonia, you explain that the shift in aggregate demand creates . You also explain that will be affected in the short run. You note that such a gap leads to an unemployment rate that is the natural unemployment rate. This means that wages are certain to . As wages change, the curve shifts to the until Real GDP equals Natural Real GDP. Finally, you explain that in the long run, will be affected
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