The following graph shows three total expenditure lines for an economy at three different price levels. AE10 corresponds to the price level of 130; AE corresponds to the price level of 110; AEse corresponds to the price level of 150. The black line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real GDP and total expenditure are equal.
The following graph shows three total expenditure lines for an economy at three different price levels. AE10 corresponds to the price level of 130; AE corresponds to the price level of 110; AEse corresponds to the price level of 150. The black line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real GDP and total expenditure are equal.
Chapter5: Gross Domestic Product
Section: Chapter Questions
Problem 9SQ
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Transcribed Image Text:The following graph shows three total expenditure lines for an economy at three different price levels. AE10 corresponds to the price level of 130;
AE110 corresponds to the price level of 110; AE10 corresponds to the price level of 150. The black line (which starts in the bottom left corner) is a
45-degree line illustrating the set of points for which real GDP and total expenditure are equal.
AGGREGATE EXPENDITURES (Billions of dollars)
PRICE LEVEL
160
150
140
130
120
110
800
100
700
90
600
500
400
The level of equilibrium output at a price level of 110, is
300
On the following graph, plot the aggregate demand curv
200
100
0
0
0
100
200 300
REAL GDP (Billions of dollars)
100
500 600 700 800
200 300 400
500
REAL GDP (Billions of dollars)
600
AE 110
130
AE 150
$400 billion
from varying the price level from 110 to 130 to 150, holding all else equal.
?
$700 billion
700 800
$800 billion
$100 billion
Aggregate Demand (AD)
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