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# Graphing the AD and AS Curves

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Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown:

Real GDP demanded Price level Real GDP supplied
100 300 450
200 250 400
300 200 300
400 150 200
500 100 100

a. use the above data to graph aggregate demand aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full- employment real output?

b. If the price level in this economy is 150, will quantity demand equal, exceed, or fall short
of quantity supplied? By what amount? If the price level is 250, will quantity demand equal, exceed, or fall short of quantity supplied? By what amount?

c.. Suppose that buyers desire to purchase \$200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What is the new equilibrium price level and level of real output?

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#### Solution Preview

3. a)
See the attached file. The equilibrium price level is 200 and the equilibrium ...

#### Solution Summary

This solution shows how to graph the Aggregate Demand and Aggregate Supply curves from AD and AS schedules. It also shows how to interpret the graph and determine the new equilibrium of the economy after an increase in AD.

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## Aggregate Supply and Aggregate Demand

A. Draw the aggregate demand-aggregate supply model of the macroeconomy for the short run, assuming that economy is in the expansionary phase of the business cycle. Label the aggregate demand curve as AD and the aggregate supply curve as AS. be sure to label the axes appropriately.

B. Identify and describe changes in the AS-AD graph above, that would result from cost-push inflation.

C. Identify and describe changes in the AS-AD graph above, that would result from demand-pull inflation.

D. Identify and describe changes in the AS-AD graph above, that would result from the implementation of contractionary fiscal policy.

E. Identify and describe changes in the AS-AD graph above that would result from the implementation of an easy monetary policy.

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