Question

Continuing from Problem $10-2,$suppose that the full-employment level of nominal GDP in the following year rises to $21.85$trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if $LRAS$ and $AD$ shift rightward by the same amount.)

Short answer

There exists a shift in $AD$ and $AS$ keeping equilibrium price level to be unchanged.

Step-by-step solution

Given Information

The equilibrium within the economy occurs when the demand furthermore because the supply curves within the economy meet. This state of equilibrium are going to be seen where the mixture demand which is denoted as $AD$and therefore the long term supply curve which is denoted as $LRAS$will cross.

Explanation

As it is sustained from the second question where real GDP was given bent be $18$trillion and future equilibrium index number is $115$ during which the nominal GDP was revealed to be $20.7$ trillion. The calculation for the identical is shown as follows:

role="math" localid="1651516163435" $\begin{array}{r}\text{NominalGDP}=\mathrm{\$}18\text{trillion}\times \left(\frac{115}{100}\right)\\ \end{array}$

$=\mathrm{\$}20.7\text{trillion}$

Therefore, the complete employment level of the nominal $GDP$within the economy is$20.7$ trillion dollars.

Nominal Amount

Now, if the nominal GDP rises to $21.85$ trillion and also the future equilibrium price index remains constant at $115$ . And it's required to seek out what quantity rightward shift in $LRAS$ needed. So, first we are going to find the real $GDP$made with the increased nominal amount.

The calculation for the identical is shown as follows:

$\begin{array}{r}\text{Nominal GDP}=\text{Real GDP}\times \left(\frac{115}{100}\right)\\ \end{array}$

$21.85=\text{Real GDP}\times \left(\frac{115}{100}\right)$

$\text{Real GDP}=\mathrm{\$}19\text{trillion}$

LRAS Diagram

Initially, the intersection of Aggregate supply $\left(LRAS\right)$and Aggregate demand ($AD$) at point A gives the equilibrium price to be $115$ and therefore the real $GDP$is $18$trillion. When the nominal GDP increases by $1.15$ trillion, the real $GDP$also increases by $1$trillion. Hence, there exists a shift in $AD$and localid="1651898523200" $LRAS$ keeping equilibrium price index to be unchanged.

The following diagram shows real localid="1651898527396" $GDP$and price level: