Math  /  Data & Statistics

QuestionAD0AD_0, AD1AD_1, AD2AD_2, AD3AD_3, ASAS, 0, QfQ_f, Price Level, Real GDP Refer to the diagram, in which QfQ_f is the full-employment output. If the economy's current aggregate demand curve is AD3AD_3, it is experiencing cost-push inflation. a recession. a negative GDP gap. a positive GDP gap.

Studdy Solution

STEP 1

What is this asking? If the economy is at AD3AD_3, and QfQ_f is the **full-employment output**, are we in a recession or expansion? Watch out! Don't mix up *cost-push inflation* with the GDP gap.

STEP 2

1. Analyze the graph

STEP 3

Alright, so we're given this cool graph showing **Aggregate Supply** (ASAS) and a bunch of **Aggregate Demand** (ADAD) curves.
We're told that QfQ_f represents the **full-employment output**, which is like the ideal level of production when everyone who wants a job has one.

STEP 4

The problem tells us that the economy is currently operating along the AD3AD_3 curve.
Let's **locate** AD3AD_3 on the graph.

STEP 5

Now, let's **find** where AD3AD_3 intersects the ASAS curve.
This intersection point shows us the current equilibrium level of **Real GDP** and the **Price Level**.

STEP 6

Notice that the **Real GDP** associated with AD3AD_3 is to the *right* of QfQ_f.
This means the current output is *greater* than the **full-employment output**.

STEP 7

When **Real GDP** is *higher* than the **full-employment output**, it means the economy is producing *more* than it would at full employment.
This indicates an **expansionary** phase, not a recession!

STEP 8

Since the economy is in an **expansionary** phase, there's a *positive* **GDP gap**.
This gap represents the difference between the actual **Real GDP** and the **full-employment output**.

STEP 9

The economy is experiencing a **positive GDP gap**.

Was this helpful?

Studdy solves anything!

banner

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

ParentsInfluencer programContactPolicyTerms
TwitterInstagramFacebookTikTokDiscord