Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:
Amount of real domestic output demanded (billions)
Price level (price index)
Amount of real domestic output supplied (billions)
60
115
300
120
110
240
180
105
180
240
100
120
300
95
60
What will be the equilibrium price and real output level in this hypothetical economy? Is this level of real GDP also the full-employment level of output? Explain.
Why won't a price level of 100 be the equilibrium price level? Why won't a price level of 110 index be the equilibrium price level?
Suppose aggregate demand increases by $120 billion at each price level. What will be the new equilibrium price and output levels?
Suppose short-run aggregate supply increases by $120 billion at each price level. What will be the new equilibrium price and output levels?
Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:
| Amount of real domestic output demanded (billions) | Price level (price index) | Amount of real domestic output supplied (billions) |
|---|---|---|
| 60 | 115 | 300 |
| 120 | 110 | 240 |
| 180 | 105 | 180 |
| 240 | 100 | 120 |
| 300 | 95 | 60 |
What will be the equilibrium price and real output level in this hypothetical economy? Is this level of real GDP also the full-employment level of output? Explain.
Why won't a price level of 100 be the equilibrium price level? Why won't a price level of 110 index be the equilibrium price level?
Suppose aggregate demand increases by $120 billion at each price level. What will be the new equilibrium price and output levels?
Suppose short-run aggregate supply increases by $120 billion at each price level. What will be the new equilibrium price and output levels?
Related textbook solutions
Related questions
1) Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the unemployment rate?
2) If the CPI was 110 last year and is 121 this year, what is this yearâs rate of inflation? In contrast, suppose that the CPI was 110 last year and 108 this year. What is this yearâs rate of inflation? What term do economics use to describe this second outcome?
3) Use the hypothetical economy data in the table below to answer the following questions.
| Amount of Real GDP Demand, in Billions | Price Level (Price Index) | Amount of Real GDP Supplied, in Billions |
| $180 | 300 | $500 |
| 260 | 250 | 400 |
| 300 | 200 | 300 |
| 420 | 150 | 200 |
| 560 | 100 | 100 |
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a) What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Use Excel to graph both the aggregate demand and aggregate supply curves. Can there be equilibrium level of output at below full employment?
b) At what price level will aggregate supply FALL BELOW [equal] aggregate demand? At what price level will demand fall below aggregate supply? If given a price level of 250, will aggregate demand exceed supply?
c) If the aggregate demand schedule shifted by $140 billion to the right at every level, what would be the new equilibrium level of income?
Refer to the data below.
|
a. What is the equilibrium level of output?
What is the equilibrium price level?
b. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Insert the new values for real output demanded in the table below.
|
What is the new equilibrium level of output?
What is the new equilibrium price level?
By what percentage will the price level increase?
Will this inflation be demand-pull inflation or will it be cost-push inflation?
c. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand?
d. If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?
