Assume that the US economy is operating below full employment. Draw a correctly labeled graph of long-run aggregate supply, short-run aggregate supply, and aggregate demand, and show each of the following (Current equilibrium output and price level, labeled as Y1 and PL1 & Full-employment output, labeled as Yf)
Assume that the US economy is operating below full employment. Draw a correctly labeled graph of long-run aggregate supply, short-run aggregate supply, and aggregate demand, and show each of the following (Current equilibrium output and price level, labeled as Y1 and PL1 & Full-employment output, labeled as Yf)
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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?
