Final answer:
A graph illustrating an economy at full employment includes three curves: the vertical long-run aggregate supply curve at potential GDP, the upward-sloping short-run aggregate supply curve, and the downward-sloping aggregate demand curve intersecting at current price level PL₁, indicating an equilibrium at full employment and potential GDP.
Step-by-step explanation:
To illustrate the economy of Country X at full employment, we need to draw three curves on the graph: the long-run aggregate supply (LRAS), the short-run aggregate supply (SRAS), and the aggregate demand (AD) curves. The LRAS curve is a vertical line at the potential or full-employment GDP, reflecting the idea that in the long run, the economy's output is determined by its resources such as labor and capital, not by the price level. In contrast, the SRAS curve is upward-sloping as it depicts that in the short run, an increase in the price level can lead to an increase in output as firms are incentivized to produce more. Lastly, the AD curve is downward-sloping, representing that at a lower price level, the quantity of goods and services demanded is higher.
At full employment, the SRAS and LRAS curves intersect at the potential GDP level, and the AD curve intersects with these at the current price level (PL₁). This equilibrium reflects a situation where the economy is producing at its full capacity, and any changes in the price level will not affect the output level, which remains stable at potential GDP.
Note that the current price level, labeled PL₁, is where all three curves meet, representing an equilibrium where the demands of goods and services are satisfied at current prices, and the economy is utilizing all its resources efficiently.