Question

In: Economics

Use the following information to draw aggregate demand (AD) andaggregate supply (AS) curves on the...

Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph.

Price LevelOutput Demanded (Aggregate Demand)Output Supplied (Aggregate Supply)
8000$800
100$700100


Instructions: Use the tools provided 'AD' and 'AS' to plot the aggregate demand (AD) and aggregate supply (AS) curves. Plot only the endpoints of each line (plot 2 points for each line—4 points total). Both curves are drawn to be straight lines.

Aggregate Supply and Demand Tools Price Level (average price) Real Output (quantity per year)

Instructions: Enter your response as a whole number.

a. What is the equilibrium price level?

     $

b. What curve would have shifted if a new equilibrium were to occur at an output level of 700 and a price level of $700?

  • AD shifts to the left.

  • AS shifts to the left.

  • AD shifts to the right.

  • AS shifts to the right.

c. What curve would have shifted if a new equilibrium were to occur at an output level of 200 and a price level of $600?

  • AD shifts to the right.

  • AD shifts to the left.

  • AS shifts to the right.

  • AS shifts to the left.


Solutions

Expert Solution

a. Equilibrium price = 400

b. AD shifts to the right.

Reason: When AD shifts to the right (with AS fixed), it increases both price and quantity in equilibrium.

c. AS shifts to the left.

Reason: When AS shifts to the left (with AD fixed), it decreases quantity and increases price in equilibrium.

Rahul Sunny answered 2 years ago
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