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Draw an aggregate demand/aggregate supply model of the economy to predict what happens to GDP, price,...

Draw an aggregate demand/aggregate supply model of the economy to predict what happens to GDP, price, and unemployment levels when households increase credit card debt or usage. Label graph.

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Expert Solution

When a household in the market increases the usage of credit card, this will shift the AD curve to the right and the new equilibrium will be at a higher price and higher level of output.

Here, the intial equilibrium in the market was at A, price level p2 and ouptut q1, when the use of credit card increased the demand curve shifted to the right and the new equilibrium will be at a higher price P1 and higher output Q*, and equilibrium B.

Rahul Sunny answered 2 years ago
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