Suppose the Aggregate Demand and Supply schedules for a hypothetical economy are as shown below: Amount...

Suppose the Aggregate Demand and Supply schedules for a hypothetical economy are as shown below:

Amount of Real Domestic Price Level Amount of Real Domestic

Output Demanded (billions) (Price Index) Output Supplied (billions)

$200 300 $800

$400 250 $800

$600 200 $600

$800 150 $400

$1,000 100 $200

Use the data to graph the Aggregate Demand and Aggregate Supply curves.
What will be the equilibrium price and output levels in this hypothetical economy? Is it also the full employment level of output? Explain.
Why won’t 150 be the equilibrium price level? Why won’t 250 be the equilibrium price level? Explain.
Suppose demand increases by $400 billion at each price level. What will be the new equilibrium price and output levels? Explain and show on the graph.
What factors might cause the Aggregate Demand to increase as in question 4? Explain.

Expert Solution

Rahul Sunny answered 2 years ago

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