Question

In: Economics

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

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 450 and a price level of $450?

AD shifts to the right

AD shifts to the left

AS shifts to the right

AS shifts to the left

c. What curve would have shifted if a new equilibrium were to occur at an output level of 350 and a price level of $450?

AS shifts to the left.

AS shifts to the right.

AD shifts to the left.

AD shifts to the right

Solutions

Expert Solution

(a)

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(a) At equilibrium point, AD and AS curve intersects each other.

Thus, the equilibrium price is $400.

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(b) Rightward shift of the AD curve will increase the equilibrium price to $450 and equilibrium quantity to 450 units.

New equilibrium occurs at the intersection point of New AD and AS curve.

Answer: Option (A) i.e., AD shifts to the right.

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(c) Leftward shift of the AS curve will increase the equilibrium price to $450 and decrease the equilibrium quantity to 350 units.

New equilibrium occurs at the intersection point of New AS curve and AD curve.

Answer: Option (A) i.e., AS shift to the left.

Rahul Sunny answered 1 year ago

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