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The following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. PRICE LEVEL 130 125 120 115 110 105 The Simple Keynesian Model AD₁ AS A AD2 + New Eq

The following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. PRICE LEVEL 130 125 120 115 110 105 The Simple Keynesian Model AD₁ AS A AD2 + New Eq

ENGR.ECONOMIC ANALYSIS
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 (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. PRICE LEVEL 130 125 120 115 110 105 100 95 90 8.0 8.5 The Simple Keynesian Model AD AS 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) AD2 + New Eq Suppose consumers and businesses become less optimistic about future economic conditions, causing aggregate demand to decrease by a total $1.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD1 (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. The decrease in aggregate demand leads to a movement along the level to , and the equilibrium level of Real GDP to range of the aggregate supply curve, causing the equilibrium price
Transcribed Image Text:The following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. PRICE LEVEL 130 125 120 115 110 105 100 95 90 8.0 8.5 The Simple Keynesian Model AD AS 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) AD2 + New Eq Suppose consumers and businesses become less optimistic about future economic conditions, causing aggregate demand to decrease by a total $1.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD1 (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. The decrease in aggregate demand leads to a movement along the level to , and the equilibrium level of Real GDP to range of the aggregate supply curve, causing the equilibrium price
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