### Economic Equilibrium ScenarioInitially, an economy is in long-run equilibrium with a real GDP of $4 trillion. Suppose the nominal money supply in this economy increases by 50%, and at the same time, the energy supply increases in the same ratio.**Instructions:**1. **Using the Aggregate Demand (AD) or Aggregate Supply (AS) Model:** - Analyze the effect on the economy when there is an increase in both the nominal money supply and energy supply by 50%.2. **Graphical Illustration:** - Using the graphical tool provided, show the new equilibrium price level and output. - Carefully follow the instructions above and only draw the required objects.**Graph Explanation:**- **Axes:** - The horizontal axis represents the Real GDP (in trillions). - The vertical axis shows the Price Level.- **Lines:** - **AD (Aggregate Demand):** A downward sloping line indicating the relationship between the price level and the quantity of goods and services demanded. - **LRAS (Long-Run Aggregate Supply):** A vertical line representing the economy's maximum sustainable output at a given price level, suggesting that the real GDP is at full employment.- **Current Equilibrium:** - Intersection of AD and LRAS lines indicates the initial equilibrium at a price level of 120 and a real GDP of $4 trillion.The task involves shifting the curves in the model to illustrate how changes in money and energy supply affect this equilibrium.

Aggregate demand is the finished goods and services total demand that is produced in the economy. It is expressed as the gross domestic product of a country including, consumption, investment, and government expenditure and net exports. The productive capacity of the economy increases by 50% the long-term supply curve shift to the right is given below;The aforementioned figure shows the relationship between price and real GDP on the vertical and horizontal axis respectively. The LRAS2 is depicted vertically. The increase in 50% of trillion is $6 trillion. . The new equilibrium real GDP is $6 trillion and the price level isThe productive capacity rises by and the money supply increases the economy LRAS1 shifts right to LRAS2. The new equilibrium point is E2 labeled in the figure.

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Initially, an economy is in long-run equilibrium with a real GDP of $4 trillion. Suppose that the productive capacity of the economy increases by 50% and at the same time, the money supply increases at the same rate. 1.) Using the line drawing tool (possibly twice), show the effect on the economy. Property label your new line. 2.) Using the point drawing tool, show the new equilibrium price level and output. Label the point E Carefully follow the instructions above, and only draw the required objects. Price Level 220- 200 180- 160 140 120 100+ $88 80- 40 LRAS, AD₁ 8 Real GDP per year ($ trillions)

Initially, an economy is in long-run equilibrium with a real GDP of $4 trillion. Suppose that the productive capacity of the economy increases by 50% and at the same time, the money supply increases at the same rate. 1.) Using the line drawing tool (possibly twice), show the effect on the economy. Property label your new line. 2.) Using the point drawing tool, show the new equilibrium price level and output. Label the point E Carefully follow the instructions above, and only draw the required objects. Price Level 220- 200 180- 160 140 120 100+ $88 80- 40 LRAS, AD₁ 8 Real GDP per year ($ trillions)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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