6. 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 Natural Real GDP of $11 trillion. 130 The Simple Keynesian Model AD Do graph. (Do equilibrium too). You need two by coordinates. This is how AD2 would look like if you put it on the graph. PRICE LEVEL 125 120 115 110 105 100 95 90 00 8.0 8.5 8.0 9.5 10.0 10.5 AS 11.0 11.5 12.0 REAL GDP (Trillions of dollars) AD₂ + New Eq This dot needs the (, ) This dot needs the (, ) Suppose consumers and businesses become more optimistic about future economic conditions, causing aggregate demand to increase by a total $0.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD1 (you can mouse over AD1 to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. horizontal or vertical The increase in aggregate demand leads to a movement along the level to ▼, and the equilibrium level of Real GDP to decrease, increase, or remains the same range of the aggregate supply curve, causing the equilibrium price decrease, increase, or remains the same
6. 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 Natural Real GDP of $11 trillion. 130 The Simple Keynesian Model AD Do graph. (Do equilibrium too). You need two by coordinates. This is how AD2 would look like if you put it on the graph. PRICE LEVEL 125 120 115 110 105 100 95 90 00 8.0 8.5 8.0 9.5 10.0 10.5 AS 11.0 11.5 12.0 REAL GDP (Trillions of dollars) AD₂ + New Eq This dot needs the (, ) This dot needs the (, ) Suppose consumers and businesses become more optimistic about future economic conditions, causing aggregate demand to increase by a total $0.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD1 (you can mouse over AD1 to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. horizontal or vertical The increase in aggregate demand leads to a movement along the level to ▼, and the equilibrium level of Real GDP to decrease, increase, or remains the same range of the aggregate supply curve, causing the equilibrium price decrease, increase, or remains the same
Chapter1: Making Economics Decisions
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TOPIC: Macroeconomic equilibrium and the ranges of the aggregate supply curve .
Transcribed Image Text:6. 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 Natural Real GDP of $11
trillion.
130
The Simple Keynesian Model
AD
Do graph. (Do equilibrium
too). You need two by
coordinates. This is how AD2
would look like if you put it
on the graph.
PRICE LEVEL
125
120
115
110
105
100
95
90
00
8.0
8.5
8.0
9.5
10.0 10.5
AS
11.0
11.5
12.0
REAL GDP (Trillions of dollars)
AD₂
+
New Eq
This dot
needs the
(, )
This dot
needs the
(, )
Suppose consumers and businesses become more optimistic about future economic conditions, causing aggregate demand to increase by a total $0.5
trillion at each price level (after all multiplier effects have taken place).
On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to
AD1 (you can mouse over AD1 to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after
the shift of aggregate demand.
horizontal or
vertical
The increase in aggregate demand leads to a movement along the
level to
▼, and the equilibrium level of Real GDP to
decrease, increase, or
remains the same
range of the aggregate supply curve, causing the equilibrium price
decrease, increase, or
remains the same
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