AB 204 Course Great Wisdom / tutorialrank.com AB 204 Course Great Wisdom / tutorialrank.com | Page 12

b) Empirical studies indicate that the long-run trend in real
GDP of the USA has an upward trend. How is this possible
given business cycles and macroeconomic fluctuations? What
factors explain the upward trend in spite of the cycles?

5) Assume there are short-run and long-run Macroeconomic
Equilibriums in the economy.

Refer to the AS and AD curves above to answer the following
questions.

What is the initial point of the long-run macroeconomic
equilibrium? What are the equilibrium values? What does the
appearance of the long-run aggregate-supply (LRAS) curve
indicate? How does it differ from AS?

What are the factors that can shift short-run aggregate supply
curve from AS1 to AS2? What does Point A represent in the
graph? What does point B represent? Is it the short-run or longrun macroeconomic equilibrium? Explain.

Assume aggregate demand (AD) is held constant, in the longrun, starting from point B, what will the economy likely
experience? Will it reach the long equilibrium?
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