This graph depicts an economy a in a recessionary gap so une

This graph depicts an economy: a. in a recessionary gap, so unemployment is below the natural rate. b. in an inflationary gap, so unemployment is in excess of the natural rate. c. in a recessionary gap, so unemployment is in excess of the natural rate. d. in an inflationary gap, so unemployment is below the natural rate. Which of the following could cause the economy depicted above to move to equilibrium at full-employment output? a. A rightward shift of the SRAS curve b. A leftward shift of the SRAS curve c. A rightward shift of AD curve d. All of the above will move this economy to equilibrium at full employment In the long run, when prices are perfectly flexible: a. aggregate supply is vertical and a market economy is self-correcting. b. a market economy cannot self-correct. c. government will be required to set prices to maintain equilibrium. d. changes in aggregate demand cause equilibrium real GDP to change. An increase in household wealth when the SRAS curve is upward sloping: a. leads to an increase in the price level but has no impact on real GDP. b. has no impact on the price level but leads to an increase in real GDP. c. leads to an increase in both the price level and real GDP. d. has no impact on the price level or real GDP.

Solution

d. Inflatonary gap where unemployment is below natural rate. This is because actaul GDP is more than POTENTIAL GDP b. Leftward shift of SRAS curve will decrease supply and intersects AD at a point ON LRAS a. AS is flexible amd marekt is self correcting c. leads to increase in both price and GDP. With more wealth, people will demand more and more money wil come into the circulation.