Suppose the aggregate demand and short-run aggregate supply schedules for a hypothetical economy are as shown below:
(a) What will be the equilibrium price and real output level in this hypothetical economy? Is this level of real GDP also the full-employment level of output? Explain.(b) Why won't a price level of 100 be the equilibrium price level? Why won't a price level of 110 index be the equilibrium price level?
(c) Suppose aggregate demand increases by $120 billion at each price level.What will be the new equilibrium price and output levels?
(d) What factors might cause aggregate demand to increase?
(e) Suppose short-run aggregate supply increases by $120 billion at each price level.What will be the new equilibrium price and output levels?
Definitions:
Marginal Product
The additional output produced by using one more unit of a given input, holding all other inputs constant.
Marginal Cost Curve
A graphical representation that shows how the cost of producing one additional unit of a good changes as the production volume varies.
Short-Run Marginal Cost
The change in total cost associated with producing one additional unit of output, considering some inputs are fixed.
Embryonic Disk
A key structure in early embryonic development from which the embryo begins to form.
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