In: Economics
59. Review the problem shown in the Work It Out titled "Interpreting the AD/AS Model." Like the
information provided in that feature, Table 24.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia.
Price Level AD AS
110 700 600
120 690 640
130 680 680
140 670 720
150 660 740
160 650 760
170 640 770
Table 24.2 Price Level: AD/AS
a. Plot the AD/AS diagram from the data shown. Identify the equilibrium.
b. Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at
every price level. Identify the new equilibrium.
c. How will the new equilibrium alter output? How will it alter the price level? What do you
think will happen to employment?