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Aggregate Supply in the short run and long run

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Answer the following questions on the basis of three sets of data for the country of North Vaudeville:

a. Which set of data illustrates aggregate supply in the immediate short-run in North Vaudeville? The short run? The long run?

b. Assuming no change in hours of work, if real output per hour of work increases by 10 percent, what will be the new levels of real GDP in the right column of A? Does the new data reflect an increase in aggregate supply or does it indicate a decrease in aggregate supply?

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Solution Summary

Given three sets of Real GDP data at different price levels for the fictional country of North Vaudeville, this solution shows how to calculate the effect on aggregate supply of an increase in worker productivity.

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2.a)
Immediate short run = B. The price level lags behind changes in real GDP.
Short run = A. The price ...

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