Aggregate Supply & Aggregate Demand
Consider the table below for the aggregate supply (AS), and aggregate demand (AD), for goods and services in the United States.
|
Price Level - P
(Y Axis)
|
Real GDP Demandedin billions (AD)
|
Real GDP Supplied
in billions (AS)
|
|
50
|
16,300
|
15,100
|
|
60
|
16,200
|
15,200
|
|
70
|
16,100
|
15,300
|
|
80
|
16,000
|
15,400
|
|
90
|
15,900
|
15,500
|
|
100
|
15,800
|
15,600
|
|
110
|
15,700
|
15,700
|
|
120
|
15,600
|
15,800
|
|
130
|
15,500
|
15,900
|
|
140
|
15,400
|
16,000
|
|
150
|
15,300
|
16,100
|
|
160
|
15,200
|
16,200
|
|
170
|
15,100
|
16,300
|
1. On the grid below, create a graph depicting the U.S. economy using the table above, and plot the AD and the AS. (Use EXCEL to plot the graph on a separate sheet if possible, but not required. Use titles on the graph, axes, and curves; Use X axis for Real GDP and Y axis for price level.).
2. a. Calculate the slope of the AD curve using data in the table/graph.
b. Calculate the slope of the AS curve using data in the table/graph.
c. Using 3-4 well-written sentences and numerical examples in the table for the each of the following two questions.
(i) Explain why the AD curve has the slope you calculated as a result of the "wealth effect".
(ii) Explain why the AS curve has the slope you calculated as a result of the "sticky price theory".
3. Using the graph created from the data in the table, determine the short-run equilibrium price level and level of output. Explain using 2-3 well written sentences how this equilibrium point is determined and include the numerical values.
4. From your graph, explain using 2-3 sentences how an increase in real GDP could occur in the economy and give a specific written real world scenario or example. Include the resulting effect on the price level (P) and give the correct terminology that corresponds to this type of price level change.
5. On your existing graph, draw what would happen if: 1) crude oil prices fell slightly, and 2) stock and housing prices declined sharply.
Explain the result using 2-3 sentences and include numerical examples from your new graphical outcome. Compare the new position of the aggregate supply and demand curves, and the new short-run equilibrium compared to the old one.