### Exploring Aggregate Supply and Demand Conditions in an EconomyThe graph provided illustrates the aggregate supply and demand conditions within an economy. It highlights the relationship between the price level (vertical axis) and real output in trillions of dollars per year (horizontal axis). #### Graph Explanation:- **Axes**: - The vertical axis represents the Price Level (measured in average prices). - The horizontal axis represents Real Output (measured in trillions of dollars per year).- **Curves**: - **AD1 (Aggregate Demand Curve)**: This curve is downward sloping, indicating the inverse relationship between the price level and the quantity of real output demanded. - **AS1 (Aggregate Supply Curve)**: This curve is upward sloping, reflecting the positive relationship between the price level and the quantity of real output supplied.- **Equilibrium (Point A)**: - **Point A** on the graph indicates the current equilibrium where the aggregate demand (AD1) and aggregate supply (AS1) curves intersect. #### Assumptions:- The analysis assumes that full employment occurs when $5 trillion of real output is produced.- The economy is currently in equilibrium at point A.### Instructions:1. **In parts a, b, and d, enter your responses as a whole number.** - **a. What is the equilibrium rate of output?** - **Response:** $ \$ \ $ trillion per year - **b. How far short of full employment is the equilibrium rate of output?** - **Response:** $ \$ \ $ trillion2. **On the graph, illustrate a shift of aggregate demand that would change the equilibrium rate of output to $5 trillion.** - **Instructions:** Shift the aggregate demand curve (AD1) such that the new equilibrium in the macro model is at $5 trillion. Then use the tool provided to label the new equilibrium (EQ).3. **d. What is the price level at this full-employment equilibrium?**The graph helps in understanding how shifts in aggregate demand and supply can affect the overall price level and real output in an economy. This dynamic is crucial for analyzing economic policies and their impacts on employment and inflation.### Graph Annotation Tool:- **Tools Provided:** The graph tool includes an option

Aggregate demand refers to the total demand for commodities and services made by all the economic…

Assume that the accompanying graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $5 trillion of real output is produced. The economy is currently in equilibrium at point A. Price Level (average price) 260 240 220 200 180 160 140 120 100 0 1 2 3 4 5 6 AS, 7 AD₁ 1 Real Output (in trillions of dollars per year) 8 Tools EQ O Instructions: In parts a, b, and d, enter your responses as a whole number. a. What is the equilibrium rate of output? $ trillion per year D. How far short of full employment is the equilibrium rate of output? trillion E. On the graph, illustrate a shift of aggregate demand that would change the equilibrium rate of output to $5 trillion. nstructions: Shift the aggregate demand curve (AD₁) such that the equilibrium in the macro model is at $5 trillion. Then use the tool provided 'EQ' to label the new equilibrium. d. What is the price level at this full-employment equilibrium?

Assume that the accompanying graph depicts aggregate supply and demand conditions in an economy. Full employment occurs when $5 trillion of real output is produced. The economy is currently in equilibrium at point A. Price Level (average price) 260 240 220 200 180 160 140 120 100 0 1 2 3 4 5 6 AS, 7 AD₁ 1 Real Output (in trillions of dollars per year) 8 Tools EQ O Instructions: In parts a, b, and d, enter your responses as a whole number. a. What is the equilibrium rate of output? $ trillion per year D. How far short of full employment is the equilibrium rate of output? trillion E. On the graph, illustrate a shift of aggregate demand that would change the equilibrium rate of output to $5 trillion. nstructions: Shift the aggregate demand curve (AD₁) such that the equilibrium in the macro model is at $5 trillion. Then use the tool provided 'EQ' to label the new equilibrium. d. What is the price level at this full-employment equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

### Exploring Aggregate Supply and Demand Conditions in an Economy

The graph provided illustrates the aggregate supply and demand conditions within an economy. It highlights the relationship between the price level (vertical axis) and real output in trillions of dollars per year (horizontal axis).

#### Graph Explanation:
- **Axes**:
- The vertical axis represents the Price Level (measured in average prices).
- The horizontal axis represents Real Output (measured in trillions of dollars per year).

- **Curves**:
- **AD<sub>1</sub> (Aggregate Demand Curve)**: This curve is downward sloping, indicating the inverse relationship between the price level and the quantity of real output demanded.
- **AS<sub>1</sub> (Aggregate Supply Curve)**: This curve is upward sloping, reflecting the positive relationship between the price level and the quantity of real output supplied.

- **Equilibrium (Point A)**:
- **Point A** on the graph indicates the current equilibrium where the aggregate demand (AD<sub>1</sub>) and aggregate supply (AS<sub>1</sub>) curves intersect.

#### Assumptions:
- The analysis assumes that full employment occurs when $5 trillion of real output is produced.
- The economy is currently in equilibrium at point A.

### Instructions:

1. **In parts a, b, and d, enter your responses as a whole number.**

- **a. What is the equilibrium rate of output?**
- **Response:** $ \$ \ $ trillion per year

- **b. How far short of full employment is the equilibrium rate of output?**
- **Response:** $ \$ \ $ trillion

2. **On the graph, illustrate a shift of aggregate demand that would change the equilibrium rate of output to $5 trillion.**
- **Instructions:** Shift the aggregate demand curve (AD<sub>1</sub>) such that the new equilibrium in the macro model is at $5 trillion. Then use the tool provided to label the new equilibrium (EQ).

3. **d. What is the price level at this full-employment equilibrium?**

The graph helps in understanding how shifts in aggregate demand and supply can affect the overall price level and real output in an economy. This dynamic is crucial for analyzing economic policies and their impacts on employment and inflation.

### Graph Annotation Tool:
- **Tools Provided:** The graph tool includes an option

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Step 1: AD-AS equilibrium:

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Step 2: Equilibrium point:

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Step 4: Shift of AD:

Step 5: New price:

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