Answer the following questions on the basis of the aggregate demand and short ru

Question

Answer the following questions on the basis of the aggregate demand and short run supply schedules shown below for a hypothetical economy.

a. Assume the demand schedule shifts because of an increase in net exports. Fill in column four using your own set of numbers that reflect the shift.

b. What is the new equilibrium price and GDP after the shift, assuming the supply schedule in the third column?

c. Assume that the supply schedule shifts because of an increase in government regulations. Fill in column five using your own set of numbers that reflect the shift.

d. What is the new equilibrium price and GDP after the shift, assuming the demand schedule in the second column?
  

Amt of

Real Output

Demanded

Amt of Real Output

Supplied

Amt of Real

Output Demanded

after shift

Price Level (Index Value)

Amt of

Real Output

Demanded

Amt of Real Output

Supplied

Amt of Real

Output Demanded

after shift

Amt of Real Output Supplied after shift 300 200 600 250 300 500 200 400 400 150 500 300 100 600 200

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.

Amt of Real Output Demanded

Amt of Real Output Supplied

Amt of RealOutput Demanded after shift

From the table above we can see that the initial aggregate demand 400 units equals aggregate supply of 400 units at price level 200.

The equilibrium output is 400 units and price level is 200.

a) Let the net export increases the aggregate output by 200 at each price level. The amount of Real Output Demanded after shift is shown in the column 4 in the table above.

b)From the table above we can see that the shifted aggregate demand 500 units equals aggregate supply of 500 units at price level 250.

The equilibrium output is 500 units and price level is 250.

c) Let the increase in government regulation decreases the aggregate output supplied by 200 at each price level. The amount of Real Output supplied after shift is shown in the column 5 in the table above.

b)From the table above we can see that the shifted aggregate supply 300 units equals aggregate demand of 300 units at price level 250.

The equilibrium output is 300 units and price level is 250.

Price Level (Index Value)

Amt of Real Output Demanded

Amt of Real Output Supplied

Amt of RealOutput Demanded after shift

Amt of Real Output Supplied after shift 300 200 600 (200+200)=400 (600-200)=400 250 300 500 (300+200)=500 (500-200)=300 200 400 400 (400+200)=600 (400-200)=200 150 500 300 (500+200)=700 (300-200)=100 100 600 200 (600+200)=800 (200-200)=0

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