1. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below:
|
Amount of Real GDP Demanded (Billions)
|
Price Level (Price Index)
|
Amount of Real GDP Supplied (Billions)
|
|
$100
|
300
|
$450
|
|
200
|
250
|
400
|
|
300
|
200
|
200
|
|
500
|
100
|
100
|
a. Use the data above to graph the aggregate demand and aggregate supply curves.
Instructions:
1. Use the line tools "AD" and "AS" to draw the aggregate demand (plot 5 points total) and aggregate supply curves (plot 5 points total) given in the table above. To earn full credit for this graph, you must plot all required points for each curve.
2. Use the drop line tool called "Eq" to indicate the equilibrium price level and the equilibrium level of real output.
What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy?
Equilibrium price level =......
Equilibrium level of real output =......billion
Is the equilibrium real output also necessarily the full-employment real output? .....
b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied?
By what amount? ..........
if the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? .......
By what amount? ......... billion
c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level.
What Is the new equilibrium price level and level of real output?
The new equilibrium price level =..........
The new level of real output = ........... billion
Refer to the data in the table given below. Suppose that the present equilibrium price level and level of real GDP are 100 and $225. And that data set B represents the relevant aggregate supply schedule for the economy.
|
(A)
|
(B)
|
(C)
|
|
Price Level
|
Real GDP
|
Price Level
|
Real GDP
|
Price Level
|
Real GDP
|
|
110
|
275
|
100
|
200
|
110
|
225
|
|
100
|
250
|
100
|
225
|
100
|
225
|
|
95
|
225
|
100
|
250
|
95
|
225
|
|
90
|
200
|
100
|
175
|
90
|
225
|
a. What must be the current amount of real output demanded at the 100 price level?
Real output demanded = ......
b. If the amount of output demanded declines by $25 at the 100 price level shown In B. what will be the new equilibrium real GDP?
The new equilibrium level of real GDP =..........
In business cycle terminology, what would economists call this change in real GDP?
3. Refer to the table below
|
Real Output Demanded (Billions)
|
Price Level
|
Real Output Supplied (Billions)
|
|
$506
|
105
|
$513
|
|
508
|
104
|
512
|
|
510
|
100
|
510
|
|
512
|
96
|
507
|
|
514
|
92
|
502
|
What is the equilibrium level of output? ........ billion
What Is the equilibrium price level? $ ...............
3. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Add the new values for real output demanded to the table below.
|
Real Output Demanded (Billions)
|
New Real Output Demanded
|
Price Level
|
Real Output (Billions)
|
|
$506
|
513
|
108
|
513
|
|
508
|
515
|
104
|
512
|
|
510
|
517
|
100
|
510
|
|
512
|
519
|
96
|
507
|
|
514
|
521
|
92
|
502
|
What is the new equilibrium level of output? .......... billion
What Is the new equilibrium price level?..................
By what percentage will the price level increase?..........
4. Assume that, without taxes, the consumption schedule for an economy is shown in the first two columns of the table below. The MPC without taxes is 0.8.
Suppose a proportional tax with a 10 percent tax rate is imposed instead of the regressive tax. Calculate the new consumption schedule and note the MPC (tax inclusive) and the multiplier.
Instructions: Enter only whole numbers for your answers.
|
GDP, (Billions)
|
Consumption Before Tax (Billions)
|
Tax Rate
|
Disposable Income,( Billions)
|
Consumption $ After Tax, (Billions)
|
|
$100
|
$120
|
10%
|
90
|
|
|
200
|
200
|
10%
|
180
|
|
|
300
|
280
|
10%
|
270
|
|
|
400
|
360
|
10%
|
360
|
|
|
500
|
440
|
10%
|
450
|
|
|
600
|
520
|
10%
|
540
|
|
|
700
|
600
|
10%
|
630
|
|
Instructions: Round your answers to two decimal places.
MPC for the proportional tax consumption schedule = ........
The multiplier for the proportional tax consumption schedule...........