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 9.0 9.5 10.0 10.5 11.0 REAL GDP (Trillions of dollars) AS 11.5 12.0 641 AD₂ Macro Eq 2 ? the real 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 in inventories. Firms will respond to the change in inventories by producing and real GDP of output until the economy reaches macroeconomic equilibrium at a price level of The decrease in aggregate demand leads to a movement along the to and the equilibrium level of real GDP to Suppose consumers and businesses become less optimistic about future economic conditions, causing the aggregate demand curve to decrease by $1.5 trillion at each price level. Use the green line (triangle symbols) to show the new aggregate demand curve (AD₂). Be sure that AD2 is parallel to AD₁ (you can click on AD₁ to see its slope). Then use the purple drop lines (diamond symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. range of the aggregate supply curve, causing the equilibrium price level
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 9.0 9.5 10.0 10.5 11.0 REAL GDP (Trillions of dollars) AS 11.5 12.0 641 AD₂ Macro Eq 2 ? the real 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 in inventories. Firms will respond to the change in inventories by producing and real GDP of output until the economy reaches macroeconomic equilibrium at a price level of The decrease in aggregate demand leads to a movement along the to and the equilibrium level of real GDP to Suppose consumers and businesses become less optimistic about future economic conditions, causing the aggregate demand curve to decrease by $1.5 trillion at each price level. Use the green line (triangle symbols) to show the new aggregate demand curve (AD₂). Be sure that AD2 is parallel to AD₁ (you can click on AD₁ to see its slope). Then use the purple drop lines (diamond symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. range of the aggregate supply curve, causing the equilibrium price level
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 aggregate demand curve to decrease by $1.5 trillion at each
price level. Use the green line (triangle symbols) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD₁ (you can click on AD₁ to see its
slope). Then use the purple drop lines (diamond symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand.
range of the aggregate supply curve, causing the equilibrium price level
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