ECON MACRO 5th Edition by William McEachern

Exercise 6

Describe the market forces that push the economy toward its potential output in the long run
(Expansionary and Recessionary Gaps) Answer questions a through f on the basis of the following graph:
a. If the actual price level exceeds the expected price level reflected in long-term contracts, real GdP equals _______ and the actual price level equals _______ in the short run. 11eb5b3a_fa10_6055_a9f3_85b18fa94022
b. The situation described in part (a) results in a(n) _______ gap equal to _______.
c. If the actual price level is lower than the expected price level reflected in long-term contracts, real GdP equals _______ and the actual price level equals _______ in the short run.
d. The situation described in part (c) results in a(n) _______ gap equal to _______.
e. If the actual price level equals the expected price level reflected in long-term contracts, real GdP equals _______ and the actual price level equals _______ in the short run.
f. The situation described in part (e) results in a(n) _______ gap equal to _______.