Given the following information: Aggregate Demand function/equation: P = 1400 = 0.4Yr Aggregate Supply function/question: P = 200 + 0.2Yr Full employment real GDP = Yf = $10,000 P = CPI, Yr = Real GDP Question 1: What is the equilibrium real GDP level? Show all work that derived your answer. Question 2: What is the equilibrium CPI? Show all work that derived your answer. Question 3: Is the economy in a recession gap or inflationary/expansionary gap? Explain your answers to Questions 1 and 2 in a complete sentence or sentences.
6.
Given the following information:
Aggregate
Full employment real
P =
Question 1: What is the equilibrium real GDP level? Show all work that derived your answer.
Question 2: What is the equilibrium CPI? Show all work that derived your answer.
Question 3: Is the economy in a recession gap or inflationary/expansionary gap? Explain your answers to Questions 1 and 2 in a complete sentence or sentences.
Question 4: Draw a graph where the economy moves from where it is from your answers in Questions 1 and 2 to long-run equilibrium WITHOUT inflation or deflation occurs. (Recipe for drawing graphs on a WORD doc is posted in the Content section of Brightspace).
Question 5 (Optional Bonus): Derive the new Aggregate Demand and Aggregate Supply functions that represent the graphs in Question 4.
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