Answer to Question #89466 in Macroeconomics for Sofia Bale

Question

Use AD-SAS-LRAS graphs to show the effects of each event on Fiji's real GDP and the price level, starting from a position of long run(full employment) equilibrium

Answer 1

Long-run full employment equilibrium occurs when the aggregate demand (AD) curve cuts the short-run aggregate supply curve (SRAS) at a point on the long-run aggregate supply curve (LRSS). Since the intersection occurs at a point on the LRSS, the economy operates at potential GDP.