Refer to the table given below. Suppose that aggregate demand increases such tha
ID: 1092749 • Letter: R
Question
Refer to the table given below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $19 billion at each price level.
Real Output Demanded (Original)
Price
Level
Real Output
Supplied
$496
116
$515
503
108
512
510
100
510
517
92
507
524
84
500
By what percentage will the price level increase? percent
Will this inflation be demand-pull inflation or will it be cost-push inflation?
If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? $ billion
If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?
Real Output Demanded (Original)
Price
Level
Real Output
Supplied
$496
116
$515
503
108
512
510
100
510
517
92
507
524
84
500
Explanation / Answer
New price level will be 116 so price level will rise from 100 or 16%
Demand pull because of the higher demand.
515-510= 5 billion
Decrease spending to lower aggregate demand
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