Question

Refer to the data in the table below. Suppose that the present equilibrium price level and level of real GDP are 100 and $280, and that data set A represents the relevant aggregate supply schedule for the economy.

	(A) (B) (C) Price Level Real GDP Price Level Real GDP Price Level Real GDP 100 205 110 230 110 280 100 230 100 230 100 255 100 255 95 230 95 230 100 280 90 230 90 205

Instructions: Enter your answers as whole numbers.  

a. What must be the current amount of real output demanded at the 100 price level?

$.

b. If the amount of output demanded declined by $25 at the 100 price levels shown in A, what would be the new equilibrium real GDP? $.    


In business cycle terminology, what would economists call this change in real GDP?

Answer 1

(a)

It is given that the present equilibrium price level and level of real GDP are 100 and $280. Equilibrium occurs when Aggregate demand = Aggregate supply. Hence, Aggregate demand = Aggregate supply = $280

Hence, the current amount of real output demanded at the 100 price level is $280

(b)

Now, the amount of output demanded declined by $25 at the 100 price. Hence, Now At price $100 aggregate demand = $280 - 25 = $255. Hence Now, aggregate demand = $255.

Equilibrium occurs at that price at which Aggregate demand = aggregate supplied and equilibrium output = Aggregate demand = aggregate supplied.

Hence We can see from above table that at Price = 100, Aggregate demand = aggregate supplied = $255.

Hence, the new equilibrium real GDP is $255

(c)

As there is decrease in real GDP and economist calls such a decrease in real GDP a recession.

Hence, economists would call this change in real GDP a Recession.