In: Economics
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.