6. Nonprice-level determinants of aggregate supply The following graph shows a decrease in aggregate supply (AS) in a hypothetical economy. Specifically, aggregate supply shifts to the left from AS₁ to AS₂, causing the quantity of output supplied at a price level of 125 to fall from $250 billion to $150 billion. VEL (CPI) 200 175 150 125 AS₂ AS₁
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- 5. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (AD₁) and aggregate supply (AS) curves for a hypothetical economy with full-employment output of $11 trillion. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 8.0 8.5 9.0 AD₁ AS 10.0 10.5 11.0 9.5 REAL GDP (Trillions of dollars) 11.5 12.0 A The decrease in aggregate demand leads to a movement along the to and the equilibrium level of real GDP to AD₂ Macro Eq 2 ? Suppose the level of real GDP supplied by firms is $10.5 trillion and the price level is 105. In this case, the quantity of real GDP supplied is GDP demanded at a price level of 105, and firms will experience an unplanned producing output until the economy reaches macroeconomic equilibrium at a price level of the real in inventories. Firms will respond to the change in inventories by and real GDP of Suppose consumers and businesses become less optimistic about future economic conditions, causing the…Note: Line segments will automatically connect the points. PRICE LEVEL (Billions of dollars) 200 160 120 0 80 160 240 REAL GDP (Index numbers) The equilibrium price level is 320 400 Initial AD The change in government spending the multiplier effect. SRAS New AD ✓, and the equilibrium level of real output is Suppose that the government spending increases by $16 billion and the expenditure multiplier in this economy is 5. On the previous graph, use the purple points (diamond symbols) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve. the equilibrium level of real output by . The price level increase2. Nonprice-level determinants of aggregate demand The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. PRICE LEVEL (CPI) 170 160 150 140 130 120 110 + 100 90 0 100 04 Taxes 300, 140 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) AD2 The following table lists several determinants of aggregate demand. Consumer Expectations AD₁ Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Expected Rate of Return on Investment Incomes in Other Countries ?
- 5. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (AD₁) and aggregate supply (AS) curves for a hypothetical economy with full-employment output of $11 trillion. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 8.0 8.5 AD1 I AS 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) A AD2 Macro Eq 2 ?6. Nonprice-level determinants of aggregate supply The following graph shows an increase in short-run aggregate supply (SRAS) in a hypothetical economy. Specifically, short-run aggregate supply shifts to the right from SRAS₁ to SRAS₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. Review the graph and then complete the table that follows. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 I SRAS, 100 150 200 250 300 350 REAL GDP (Billions of dollars) Determinant Burdensome Regulations Tax Rates on Firms and Corporations Nominal Wage Rate SRAS₂ 400 The following table lists several determinants of short-run aggregate supply. Complete the table by indicating the change needed in each determinant to increase short-run aggregate supply. Change Needed to Increase SRAS4. Equilibrium The following table shows the real output demanded and supplied at various price levels in a hypothetical economy. Real Output Demanded (Billions of dollars) 10 20 30 50 80 Price Level (Index number) 160 120 80 40 20 Real Output Supplied (Billions of dollars) 85 80 70 50 20 On the following graph, use the blue points (circle symbol) to plot the aggregate demand (Initial AD) curve for the economy. Then use the orange points (square symbol) to plot the aggregate supply (AS) curve for the economy.
- 3. Determinants of aggregate demand The graph below is associated with a hypothetical country Consider a decrease in aggregate demand (AD). Specifical aggregate demand shifts to the left from AD, to AD², causing quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 110 100 90 0 100 AD₁ AD₂ 300 400 500 600 700 OUTPUT (Billions of dollars) Interest rates Domestic currency value relative to the foreign currency Consumer expectations about future profitability Government spending 800 The following table lists several determinants of aggregate demand. (?) Fill in the missing values in the table by selecting the change each scenario required to decrease aggregate demand. Change Required to Decrease ADQUESTION 8 Refer to the table, which gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output: Amount of Real Output Demanded Price Level (Index Value) Amount of Real Output Supplied $500 $200 300 300 250 450 400 200 400 500 150 300 600 150 200 O a shortage of real output of $150 will occur, O a shortage of real output of $100 will occr. O a surplus of real output of $150 will occur. O a surplus of real output of $100 will occur. O neither a shortage nor a surplus of real output will occr.8. Suppose that aggregate demand and supply for a hypothetical economy are as shown: P Amount of real Price Amount rea AS GDP level GDP supplie demanded, billions (price index) billions 100 300 450 200 250 400 AD' 300 200 300 AD 400 150 200 500 100 100 Real 100 200 300 400 GDP Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Equilibrium price level = Is the equilibrium real output also necessarily the full-capacity real output? (Yes, No ) The full-capacity level of GDP is more lil cut at $ а. Equilibrium real output = $ billion billion. b. Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250? billion, (more, less ) than billion. The (shortage, surplus) of real output will drive the At a price level of 150, real GDP supplied is a maximum of $ the real GDP demanded of $ price level up. At a price level of 250,…
- 3. Why the aggregate demand curve slopes downward The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. O PRICE LEVEL 170 100 150 140 130 120 110 100+ 8 90 0 100 B 200 300 400 500 OUTPUT (Billions of dollars) AD 600 700 8006. Nonprice-level determinants of aggregate supply The lowing graph shows an increase in aggregate supply (AS) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1 to S₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. PRICE LEVEL (CPI) 175 150 125 100 75 50 25 0 0 50 AS, 100 150 200 250 REAL GDP (Billions of dollars) 300 350 AS₂ 400 ©3. Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $500 billion, and the price level is 120. Moving up along the AD curve from point X to point Y, the quantity of output demanded falls to $300 billion, and the price level rises to 140. PRICE LEVEL 170 160 150 140 130 120 110 100 90 Y X AD (?