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Suppose the aggregate demand and
short-run aggregate supply schedules for an economy whose
potential output equals $570 are summarized in the
table below. Email.

Aggregate quantity of goods and
services

Price Level

AD

AS

100

700

200

120

600

325

140

500

500

160

400

570

180

300

620

Where is short-run equilibrium?

Characterize the current economic situation. Is there an
inflationary or a recessionary gap?

How large is it?

Imagine that consumers begin to lose confidence about the state
of the economy, and so AD becomes lower by 275 at every price
level. Identify the new aggregate equilibrium [e.g. at price level
100, AD will be 425 (700-275), etc.]. Is there an inflationary or a
recessionary gap? How large is it? What is the impact of the loss
of confidence on the economy?