Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP bigger than potential GDP. (a) Depict this situation using AD-AS, being sure to label all curves and axes. What is the gap called?
(b) In the long run, what will happen to prices and output? Depict graphically and explain.

attached below

Explanation:

Given that the economy has its actual GDP > potential GDP

A) using AD-AS to depict the situation

attached below is the graph

The gap( Lf - L1 )  is called inflationary gap

x-axis = real GDP ,  Y-axis = price level,

AD = aggregate demand curve , S = short run aggregate supply curve

L = long run aggregate supply curve,

B) In the long run the graph will adjust to the full employment level

attached below is the graph

i would say iii (3) because in order to compare a price you have to use as a reference other near stores because it's its

hope i explained myself

answer; lags, push the econ below the natural level of output;