Problem
An economy is characterized by the values in the table for aggregate demand and short-run aggregate supply. Its potential output is $1,500.
Aggregate Quantity of Goods and Services Price Level Demanded Supplied 0.50 $2,500 $1,500 0.75 2,000 2,000 1.00 1,500 2,300 1.25 1,000 2,500 1.50 500 2,600 Draw the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. State the equilibrium level of real GDP and the price level.
Characterize the current economic situation. Is there an inflationary or a recessionary gap? If so, how large is it?
Now suppose that nominal wages rise and that the price level required to induce a particular level of total output rises by 0.50. For example, a price level of 1.00 is now required to induce producers to produce a real GDP of $1,500.
Show the new short-run aggregate supply curve, state the new equilibrium price level and real GDP, and state whether there is an inflationary or a recessionary gap and give its size. Why might such a change occur?
Suppose the price level in a particular economy equals 1.3 and that the quantity of real GDP demanded at that price level is $1,200. An increase of 0.1 point in the price level reduces the quantity of real GDP demanded by $220, and a reduction of 0.1 point would produce an increase in the quantity of real GDP demanded of $220.
Draw the aggregate demand curve and show the price level and quantity of real GDP demanded at three points. Suppose an economy is described by the following aggregate demand and short-run aggregate supply curves. The potential level of output is $10 trillion.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.