Question #59602

AS/AD Model.
AD: P = 90 - 3Y.
AS: P = 15.
PO: Y = 30.
What is the Inflation?

Expert's answer

If in AS/AD Model AD function is P = 90 - 3Y, AS function is P = 15, potential output (PO) is Y = 30, then in equilibrium:

AS = AD, so 90 - 3Y = 15, Y = 25.

If at PO Y = 30, then there is a recessionary gap (real GDP is lower than potential GDP), so there is no inflation in this case.

AS = AD, so 90 - 3Y = 15, Y = 25.

If at PO Y = 30, then there is a recessionary gap (real GDP is lower than potential GDP), so there is no inflation in this case.

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