Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.
Input quantity
Real domestic output
400
800
300
600
100
200
(a) What is the level of productivity in this economy?
(b) What is the unit cost of production if the price of each input is $2.00?
(c) If the input price decreases from $2 to $1.50, what is the new per unit cost of production? In what direction would the aggregate supply curve move? What effect would this shift have on the price level and the level of real domestic output if the economy is initially operating in the intermediate range?
(d) Suppose that instead of the input price decreasing, the productivity had increased by 25 percent. What will be the new unit cost of production? In what direction would the aggregate supply curve move? What effect would this shift have on the equilibrium price and output level if the economy?
Suppose that a hypothetical economy has the following relationship between its real domestic output and the input quantities necessary for producing that level of output.
| Input quantity | Real domestic output |
| 400 | 800 |
| 300 | 600 |
| 100 | 200 |
(a) What is the level of productivity in this economy?
(b) What is the unit cost of production if the price of each input is $2.00?
(c) If the input price decreases from $2 to $1.50, what is the new per unit cost of production? In what direction would the aggregate supply curve move? What effect would this shift have on the price level and the level of real domestic output if the economy is initially operating in the intermediate range?
(d) Suppose that instead of the input price decreasing, the productivity had increased by 25 percent. What will be the new unit cost of production? In what direction would the aggregate supply curve move? What effect would this shift have on the equilibrium price and output level if the economy?
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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?
