Question

On the following graph, draw the aggregate demand (AD) and aggregate supply (AS) curves using the data in the table that lead to a full-employment equilibrium and then answer additional questions: Instructions: Use the tools provided 'AD,' and 'AS' to draw the demand curve (AD1) and the supply curve (AS). Each curve should contain 10 reference points. Price Level Real Output Real Output Demanded Supplied (5) 140 600 700 1,200 1,150 1,100 1,050 (1250, 105) Price Level (Prey 1 of 10 !! Next >

Answer 1

Price	Demand	Supply	New Demand
140	600	1200	450
130	700	1150	550
120	800	1100	650
110	900	1050	750
100	1000	1000	850
90	1100	950	950
80	1200	900	1050
70	1300	850	1150
60	1400	800	1250

Aggregate demand = Consumption + Investment + Government Expenditure + Exports - Imports

If exports falls to $150, aggregate demand falls by the same amount.

b) Initial equilibrium occurs when demand equals supply which occurs at price and quantity equals 1,000.

1000,100 Price E1 (950,90) Quantity - Demand Supply --New Demand

c) Equilibrium shifts from point E to E1 which reduces the output level to 950 units where price is 90.

d) There is inflationary gap in the economy when output level is below equilibrium level.

1000,100 Price E1 (950,90) Quantity - Demand Supply --New Demand