Answered: The imaginary country of Harris Island…

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 imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows.

a. Identify the (i) equilibrium basing from the AD/AS diagram attached.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original output, price level, and employment?

Potential
GDP
AD,
AS,
180+
160+
140+
E
120+
100+
100
200
300
400
500
600
700
Real Output
Price Level

Price level
Aggregate demand
700
Aggregate supply
100
200
120
600
325
140
500
500
160
400
570
180
300
620

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