EC120 Chapter Notes - Chapter 26: Shortage, Real Wages, Potential Output

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23 Oct 2016

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Quantity of real gdp supplied the total quantity of goods and services, valued in constant base-year dollars, that firms plan to produce during a given period. Depends on quantity of labour employed, quantity of physical and human capital, and the state of technology. Quantity of capital, state of technology, and population is fixed at any given time. Aggregate supply the relationship between the quantity of real gdp supplied and. Long-run aggregate supply the relationship between the quantity of real gdp supplied and the price level when they money wage rate changes in step with the price level to maintain full employment the price level. Quantity of real gdp supplied at full employment is potential gdp and remains the same regardless of price level. Reason is a movement along the curve is accompanied by a change in the prices of goods and services, and the prices of the factors of production (most notably the money wage rate)

Related Questions

Refer to the table given below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $15 billion at each price level.

Real Output Demanded (Original)	Price Level	Real Output Supplied
$500	112	$515
505	106	512
510	100	510
515	94	507
520	88	500

1. By what percentage will the price level increase?

2. 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? In Billions?

1. Discuss the difference between an increase in the aggregate demand curve and an increase in the quantity of real GDP demanded. Include a discussion of how the price level relates to each event.

2. What are the major factors that determine investment, and what impact does each have on aggregate demand?

3. Describe the difference between a microeconomic demand curve and an aggregate demand curve.

4. The aggregate demand curve portrays the relationship between the price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.

5. Explain how changes in the stock of capital affect aggregate supply.

6. What is the natural level of output?

periwinklecrow416

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?

lavenderrat653

EC120 Chapter Notes - Chapter 26: Shortage, Real Wages, Potential Output

EC120 Full Course Notes

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