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:
Psychological Test
a standardized measure used to evaluate an individual's mental and emotional functioning from various aspects.
Reliability
The degree to which an assessment tool produces stable and consistent results over multiple administrations under similar conditions.
Flynn Effect
The observed rise over time in standardized intelligence test scores, attributed to various factors including better nutrition and education.
WISC-IV
The Wechsler Intelligence Scale for Children, Fourth Edition, a tool used to measure a child's intellectual abilities and cognitive strength and weaknesses.
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