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Macroeconomics question!

E

erikiksaz

Diamond Member
Okay, i'm a little confused as to how i can produce a graph explaining this:

Indicate the current state of the US economy in relation to potential (Full employment) GDP.


What type of graph can i use? I've been alright with explaining the current state, but this graph is confusing!
 
y axis: price level
x axis: real GDP

graph agg supply and demand, where they cross is the current state of the economy. Draw a vertical line where potential GDP should be.

Thats what it looks like in texts books that i've seen
 
yup, sounds right to me. All you need to do is show where the current economy exists in relation to the potential GDP. (from your own wording).

so, if the real economy exists at a price level of 115, and a real GDP of say $3 trillion, but potential GDP exists at $4 trillion, you will have your AGG supp and demand curves meeting at 115/$3 trillion, and a vertical line at $4 trillion to demonstrate full employment. (as richieZ stated)
 
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