Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown at the top left of the next page.
A. Price Level 110 100 95 90
Real GDP 275 250 225 200
B. Price Level 100 100 100 100
Real GDP 200 225 250 275
C. Price Level 110 100 95 90
Real GDP 225 225 225 225
Amount of Real GDP Demanded Billions
100 200 300 400 500
Price Level (Price Index)
300 250 200 150 100
Amount of Real GDP Supplied Billions
450 400 300 200 100
a. Use the data above to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? 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?
c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What is the new equilibrium price level and level of real output?