The aggregate demand and supply for Cancum are shown in the table below. Potential GDP (LAS) is $650 billion. Price Index Aggregate Quantity Demanded Aggregate Quantity Supplied105 750 50110 650 200115 550 325120 450 450125 350 550130 250 650135 150 700140 50 750 a. If the economy is in equilibrium, it experiencing a(n) gap of $ . b. Suppose government uses countercyclical fiscal policy to close the gap. In order to achieve full employment AD would have to by $ . c. As a result of this change, the inflation rate would be %. Round your answer to 2 decimal places.
Question
The aggregate demand and supply for Cancum are shown in the table below. Potential GDP (LAS) is . b. Suppose government uses countercyclical fiscal policy to close the gap. In order to achieve full employment AD would have to by $ . c. As a result of this change, the inflation rate would be %. Round your answer to 2 decimal places.
Solution
The question seems to be incomplete. However, I can provide some guidance based on the information given.
a. The economy is in equilibrium when the aggregate quantity demanded equals the aggregate quantity supplied. From the table, this occurs at a Price Index of 120, where both the aggregate quantity demanded and supplied are 450. The potential GDP is 200 billion (450 billion).
b. To achieve full employment, the Aggregate Demand (AD) would have to increase by the amount of the gap, which is $200 billion.
c. The change in inflation rate would depend on the specific characteristics of the economy, which are not provided in the question. In general, an increase in AD could lead to higher inflation if the economy is already near or at its potential output. However, without more information, it's not possible to provide a specific percentage.
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