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 110 be the equilibrium price level? Why won't a price level of 130 index be the equilibrium price level?
(c)Suppose aggregate demand increases by $400 billion at each price level.What will be the new equilibrium price and output levels?
(d)What factors might cause aggregate demand to increase?
Definitions:
Short-term Memory
A component of memory where small amounts of information can be stored for a short duration, typically seconds to minutes.
Cross-sectional Study
A study format that examines information from a whole population or a representative sample at a particular moment.
Long-term Memory
The storage of information over an extended period, capable of lasting from minutes to a lifetime, encompassing facts, experiences, and skills.
Short-term Memory
A type of memory that holds a small amount of information for a short period, typically seconds to minutes.
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