--%>

Question on hypothetical economy

Consider that aggregate demand and the short run supply for any hypothetical economy are as :

 

1456_Hypothetical economy.png

Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?

E

Expert

Verified

At price level of 150, real GDP supplied maximum is $200 billion, less than the real GDP demanded of $400 billion. The shortage of real output will drive the price level up. At price level of 250, real GDP supplied is $400 billion that is more than the real GDP demanded of $200 billion. The surplus of real output will drive down the price level. Equilibrium takes place at the price level at which AS & AD intersect.

   Related Questions in Finance Basics

  • Q : Define Allotment Allotment : The

    Allotment: The permitted division of an amount (generally of an appropriation) to be expended for a specific purpose throughout a particular time period. An allotment is usually authorized on line item expenditure basis by program or

  • Q : Equilibrium interest rate Normal 0

    Normal 0 false false

  • Q : Explain Budget Cycle Budget Cycle : The

    Budget Cycle: The time period needed to made a state financial plan and enacts that part of it applying to the budget year. The Significant events in the cycle comprise: • The preparation of G

  • Q : What can a financial institution do for

    What can a financial institution frequently do for a surplus economic unit which it would have complexity doing for itself if the surplus economic unit (SEU) were to deal directly along with a deficit economic unit (DEU)?Usually, Surplus economi

  • Q : Define Sponsor Sponsor : It is an

    Sponsor: It is an individual, group, or organization which initiates or brings to a Legislator's attention a proposed law modification.

  • Q : Reducing payroll costs It is likely

    It is likely that in the next few years, employers will face incresing pressures to reduce their payroll costs. critically evaluate the range of ways by which payroll costs can be reduced whilst taking into account the need to maintain a focus on the

  • Q : What is Statute Statute: It is a

    Statute: It is a written law enacted by the Legislature and signed by the Governor or a vetoed bill overridden by a 2/3 vote of both houses), generally referred to by its chapter number and the year in which it is passed. The statutes which modify a s

  • Q : Describe factors which common

    Describe some factors which common stockholders consider while deciding how much, if any, cash dividends they want from the corporation wherein they have invested? Common stockholders would assume the company's investment opportunity, their requ

  • Q : Association of net present value to

    Normal 0 false false

  • Q : Unsustainable previous interest rate

    Normal 0 false false