### Understanding Aggregate Demand and Aggregate Supply#### Exhibit 15-5: Aggregate Demand and Short-Run Aggregate Supply**Graph Explanation:**The graph presented in Exhibit 15-5 illustrates the relationship between the aggregate demand (AD) curve and the short-run aggregate supply (SRAS) curve in an economy. **Graph Axes:**- The vertical axis represents the Price Level.- The horizontal axis represents Real GDP.**Curves:**- **AD Curve:** The downward-sloping curve labeled "AD" represents the aggregate demand.- **SRAS Curve:** The upward-sloping curve labeled "SRAS" represents the short-run aggregate supply.- **Potential Output:** The vertical line marked as "Potential Output" indicates the level of output an economy can produce when operating at full capacity without generating inflationary pressure.**Intersection Points:**- **Point a:** Lies on the AD curve below the SRAS curve and potential output line.- **Point b:** Lies at the intersection of the AD curve and the SRAS curve.- **Point c:** Lies on the SRAS curve above the AD curve and potential output line.#### Short-Run Equilibrium Analysis:The short-run equilibrium of the economy, where aggregate demand equals short-run aggregate supply, occurs at:- **Point b:** This is where the actual output equals potential output.**Multiple Choice Question:**Based on the graph, identify where short-run equilibrium occurs:o **a. Point b, where actual output exceeds potential output.**o **b. Point a, where actual output exceeds potential output.**o **c. Point c, where the actual price level is less than the expected price level.**o **d. Point c, where the actual price level exceeds the expected price level.**o **e. Point b, where the actual price level exceeds the expected price level.****Correct Answer:**- Point b, where the actual output equals potential output, representing the short-run equilibrium in the economy.---This explanation helps in understanding the fundamental concept of how aggregate demand and short-run aggregate supply interact to determine the equilibrium price level and output in the economy.

AD-AS model is used to determine equilibrium price level and real GDP in the economy.

Exhibit 15-5 Price level Real 0 GDP Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. In this figure, short-run equilibrium occurs at O a. point b, where actual output exceeds potential output. O b. point a, where actual output exceeds potential output. O c. point c, where the actual price level is less than the expected price level. O d. point c, where the actual price level exceeds the expected price level. e. point b, where the actual price level exceeds the expected price level. A bike jpg.jpg A bike 2.jpg ^ bike 2 ENG Potential output b OL C SRAS AD

Exhibit 15-5 Price level Real 0 GDP Exhibit 15.5 depicts the aggregate demand curve and the short-run aggregate supply curve of an economy. In this figure, short-run equilibrium occurs at O a. point b, where actual output exceeds potential output. O b. point a, where actual output exceeds potential output. O c. point c, where the actual price level is less than the expected price level. O d. point c, where the actual price level exceeds the expected price level. e. point b, where the actual price level exceeds the expected price level. A bike jpg.jpg A bike 2.jpg ^ bike 2 ENG Potential output b OL C SRAS AD

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

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,…
Which of the following would the employment level rise to in the short run? Select one: O O a. An increase in government spending. b. The minimum wage increases. c. A negative supply shock.[KA1] [KA1] edited this question as it seemed unclear to me. Would you please address this question and answers? A
no handwritten notes!
Suppose aggregate demand in the economy sharply decines. Keynesian economists say that the price level (at least for a time) will and real output wil O remain constant; decrease Increase; remain constant remain constant; increase decrease; remain constant lo000
Price Level (P) P₂ Figure 8-2 ---O B D Q₂ AD AD₂ Q, Real GDP (Q) Refer to Figure 8-2. A shift in aggregate demand from AD2 to AD1 could have been the result of O a. businesses become more optimistic about future sales. O b. businesses become more pessimistic about future sales. O c. a decrease in the price level. O d. an increase in the price level.
Full-employment equilibrium occurs when Select one: O A. aggregate demand equals short-run aggregate supply. OB. real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100. O C. all who are willing and able to work are working, and the wage level is set so that the GDP deflator equals 100. O D. all who are willing and able to work, are working. OE. real GDP equals potential GDP.
92
Which of the following is true? OA. Potential GDP decreases as the price level increases. OB. The potential GDP line has a negative slope. OC. Aggregate supply is another name for potential GDP. OD. At full employment, aggregate supply is equal to potential GDP. O E. Potential GDP increases as the price level increases.
According to the Keynesian model of macroeconomic equilibrium, a decrease in aggregate demand Select one: O a. will cause the price level to fall substantially. O b. will cause an increase in aggregate supply that will restore full employment. O c. will not cause unemployment. O d. will not cause nominal wages to decline sufficiently to restore full employment.
Suppose that the aggregate price level in Country X's economy decreases. Which of the following is true? consumer demand increases. O interest rates decrease. O investment decreases. O imports decrease.
Suppose the economy is operating at potential GDP. Then the federal government decides to implement a large tax cut. Which curve shifts and in which direction? O aggregate demand shifts left aggregate supply shifts right. aggregate supply shifts left. aggregate demand shifts right
If the unemployment rate is the natural rate, then we expect to see wages, causing the short - run aggregate supply curve to shift up. O A. greater than; decreasing O B. less than; decreasing OC. less than; increasing O D. greater than; increasing Click to select your answer. esc