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Answered Same Day Dec 26, 2021

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Robert answered on Dec 26 2021

104 Votes

An increase in aggregate demand to AD2 boosts real GDP to Y2 and the price level to P2,
creating an inflationary gap of Y2 − YP. In the long run, as price and nominal wages increase,
the short-run aggregate supply curve moves to SRAS2. Real GDP returns to potential.
1. In macroeconomics, short run is a period in which some variable are treated as fixed and long
un is a period in which all variable are treated as flexible. In the short run variables like wages
and prices are held constant and in the long run price and wages are flexible. In the long run
price and wages are flexible and market equili
ium has been achieved so that economy is at its
natural level of employment and at potential level of output. In macroeconomics we find
equili
ium on equili
ium co
esponds to short run equili
ium and one co
esponds to long run
equili
ium. In certain market, as the economic condition changes price may not change as
quickly as other variable change to maintain equili
ium in the market and crate sustained
periods of shortage or surplus.
2.

When the economy achieves its natural level of employment, as shown in Panel (a)...

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