Homework (Ch 20)13012011010090PRICE LEBAD0100200 300 400 500 600OUTPUT (Billions of dollars)As the price level falls, the cost of borrowing money willcausing the quantity of output demanded toeffect.This phenomenon is known as theAdditionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar tomarkets. The number of domestic products purchased by foreigners (exports) will thereforeproducts purchased by domestic consumers and firms (imports) will. Net exports will thereforecausing the quantity of domestic output demanded to. This phenomenon is known as the700800in foreign exchangeand the number of foreigneffect.O The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of outputdemanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity ofoutput demanded rises to $500 billion.170AOPRICE LEVEL160150140120110100BADC

Aggregate demand is downward sloping showing inverse relationship between price and output.

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 A 160 150 140 PRICE LEVEL I I I B

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 A 160 150 140 PRICE LEVEL I I I B

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 600 REAL GDP (Billions of dollars) 700 800 ?
H1.
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $50 billion of real GDP and that people expect a price level of 95. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 85, 90, 95, 100, and 105. PRICE LEVEL 125 120 115 110 105 100 95 90 85 80 75 0 + 10 20 ¶¶ 30 40 50 60 70 OUTPUT (Billions of dollars) + 80 90 100 -O AS LRAS (?) The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level falls…
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