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:
Inputs Required
The resources, such as labor, materials, and capital, that are necessary for the production of goods or services.
Marginal Product
The additional output that is produced by using one more unit of a particular input.
Total Product
The overall amount of products or services generated by a company during a specified timeframe.
Average Product
The output per unit of input, calculated by dividing total output by the total quantity of input.
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