US economy
Currently, the US economy is at high unemployment and low inflation. The diagram below shows the effect of both inflation and the unemployment rate. With the level of low unemployment, the aggregate demand will shift to the left away from the LRAS, as shown below. This will result in low prices as shown by the equilibrium price E1 resulting to low demand, Thus the AD/AS diagram shows an equilibrium level of real GDP substantially below potential GDP—as is shown in the diagram below at equilibrium point E0 it indicates a recession. In an AD/AS diagram, unemployment is shown by closeness if the economy is to the potential or full-employment level of GDP. Relatively high unemployment for an economy occurs when the level of output is far from potential GDP, as at the equilibrium point E0. On the other hand, low unemployment arises when the output is substantial to the right of potential GDP on the AD/AS diagram, as at the equilibrium point E1.