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Finding Japan's Equilibrium Real GDP From AD-AS Schedule

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In Japan potential GDP is 600 trillion yen and the table shows aggregate demand and short-run aggregate supply schedules.

Price level
Real GDP demanded
Real GDP Supplied in the short run

75 600 400
85 550 450
95 500 500
105 450 550
115 400 600
125 350 650
135 300 700

a. Draw a graph of the aggregate demand curve and the short-run aggregate supply curve.

b. What is the short-run equilibrium real GDP and price level?

c. Does Japan have an inflationary gap or a recessionary gap and what is its magnitude?

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Solution Summary

Given Japan's Aggregate Demand (AD) and Aggregate Supply (AS) schedules, this solution graphs Japan's AD and AS curves, finds its equilibrium price level and GDP, and calculates its GDP gap.