### 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?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter26: The Neoclassical Perspective

Section: Chapter Questions

Problem 21P: Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand...

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Question 13 (Mandatory) (1 point) Consider the nature of macroeconomic equilibrium. If, at a particular price level, aggregate output demanded is less than that supplied by producers, then O the price level will rise toward its equilibrium value. the aggregate supply curve will shift to the left, re-establishing an equilibrium. the price level will decline toward its equilibrium value. the aggregate demand curve will shift to the right, re-establishing an equilibrium. the aggregate supply curve will shift to the right, re-establishing an equilibrium.
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 AD
(3) "The aggregate demand curve slope slopes downward because when the price level is lower, people can afford to buy more, lead to the rise in aggregate demand. When price rises, people can afford to buy less, resulting to the fall in aggregate demand. It is therefore very much an extension of the Law of Demand in Microeconomics." Is this a good explanation of the shape of the AD curve? Why or why not?
4. Determinants of aggregate demand The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD, to AD,, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion PRICE LEVEL 170 160 130 130 120 110 100 8 0 II 200 100 II II II I I 100 300 400 OUTPUT (Billions of dollars) AD₁ 600 700 800 The following table lists several determinants of aggregate demand. (2)
Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand diagram. What is the equilibrium output and price level? If aggregate demand shifts right, what is equilibrium output? If aggregate demand shifts left, what is equilibrium output? In this scenario, would you suggest using aggregate demand to alter the level of output or to control any inflationary increases in the price level?
Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
5. Statistics show that from 2017 to 2018, unemployment decreased while inflation also decreased. Which of the following is a valid reason behind these changes? Aggregate supply curve shifted to the right, which caused the price level to decrease and national output to increase Aggregate supply curve shifted to the left, which caused the price level to increase and national output to decrease Aggregate demand curve shifted to the right, which caused the price level and national output to increase Aggregate demand curve shifted to the left, which caused the price level and national output to decrease
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 ?
4. Determinants of aggregate demand The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD₁ to AD₂, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 + 0 100 I 200 I | -+ 1 I I I AD ₂ 2 AD₁ 300 400 500 600 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. (?) Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand. Change Required to Increase AD Interest rates Domestic currency value relative to the foreign currency Consumer expectations about future profitability Government spending
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…
1. How many recessions did the US economy experience between 1929 and 2020? What were the four longest recessions between 1929 and 2019, not including the COVID-19 recession? What were the three deepest recessions between 1929 and 2019? That is, during which three recessions was the decline in real GDP biggest from peak to through? How long did the COVID-19 recession last?
please draw graph specify endpoints thanks 1 The table below shows the aggregate demand for the economy of Itera. Its potential GDP (LAS) is $725. Price Index Aggregate Quantity Demanded 70 725 90 675 110 625 130 575 a. Draw the aggregate demand curve and the potential GDP (LAS) curve in the graphing area below. Plot only curve in the graphing area using the appropriate tool. Once all points have been plotted, click on the line (not tool icon will pop up. You can use this to enter exact co-ordinates for your points as needed. for the economy of Itera AS Tools 120 AD (900, 120) Potential GDP 110 100 AD2 90 80 70 400 500 600 700 800 900 Real GDP b. The equilibrium level of GDP is $ and the price index is c. There is a recessionary v gap in Itera of $ d. If aggregate demand in Itera were to increase by $150, draw the new (AD2) curve in the graphing area above. Remember to only the endpoints of the curve. e. The new equilibrium level of GDP is $ and the price index is f. Now there is…