Use this aggregate demand-aggregate supply schedule for a hypothetical economy t
ID: 1097254 • Letter: U
Question
Use this aggregate demand-aggregate supply schedule for a hypothetical economy to answer the following questions.
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
3
350
9
4
300
8
5
250
7
6
200
6
7
150
5
8
100
4
a) What will be the equilibrium price level and quantity of real domestic output?
b) If the quantity of real domestic output demanded increased by $2 trillion at each price level, what will be the new equilibrium price level and quantity of real domestic output?
c) Using the original data from the table, if the quantity of real domestic output demanded increased by $5 trillion and the quantity of real domestic output supplied increased by $1 trillion at each price level, what would the new equilibrium price level and quantity of real domestic output be?
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
3
350
9
4
300
8
5
250
7
6
200
6
7
150
5
8
100
4
Explanation / Answer
In an economy the equilibrium occurs at a point where aggragte demand is equal to the aggregate supply for a particular price level. The output is called the equilibrium output and the price level is called the equilibrium price level.
The table below gives the aggregate demand-aggregate supply schedule for a hypothetical economy.
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
3
350
9
4
300
8
5
250
7
6
200
6
7
150
5
8
100
4
From the table above we can see that the aggregate demand $6 trillion equals aggregate supply of $6 trillion at price level 200.
The equilibrium output is $6 trillion and price level is 200.
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b. If the aggregate demand increases by $2 trillion at each price level the new data is given in the table below:
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
5
350
9
6
300
8
7
250
7
8
200
6
9
150
5
10
100
4
From the table above we can see that the aggregate demand $7 trillion equals aggregate supply of $7 trillion at price level 250.
The equilibrium output is $7 trillion and price level is 250.
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b. If the aggregate demand increases by $5 trillion and aggregate supply increases by $1 trillion at each price level the new data is given in the table below:
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
10
350
10
11
300
9
12
250
8
13
200
7
14
150
6
15
100
5
From the table above we can see that the aggregate demand $10 trillion equals aggregate supply of $10 trillion at price level 350.
The equilibrium output is $10 trillion and price level is 350.
Real domestic output demanded (trillions of $)
Price index
Real domestic output supplied (trillions of $)
3
350
9
4
300
8
5
250
7
6
200
6
7
150
5
8
100
4
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