Session:11 The Aggregate Demand/Aggregate Supply Model
Problems
Principles of Macroeconomics 3e | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-macroeconomics-3e
59. Review the problem in the Work It Out titled “Interpreting the AD/AS Model.” Like the information provided in that feature, Table 11.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia.
| Price Level | AD | AS |
|---|---|---|
| 110 | 700 | 600 |
| 120 | 690 | 640 |
| 130 | 680 | 680 |
| 140 | 670 | 720 |
| 150 | 660 | 740 |
| 160 | 650 | 760 |
| 170 | 640 | 770 |
Table 11.2 Price Level: AD/AS
- Plot the AD/AS diagram from the data. Identify the equilibrium.
- Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium.
- How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?
60. The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 11.3 shows.
| Price Level | AD | AS |
|---|---|---|
| 100 | 700 | 200 |
| 120 | 600 | 325 |
| 140 | 500 | 500 |
| 160 | 400 | 570 |
| 180 | 300 | 620 |
Table 11.3 Price Level: AD/AS
- Plot the AD/AS diagram. Identify the equilibrium.
- Would you expect unemployment in this economy to be relatively high or low?
- Would you expect concern about inflation in this economy to be relatively high or low?
- Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.
- How will the shift in AD affect the original output, price level, and employment?
61. Table 11.4 describes Santher’s economy.
| Price Level | AD | AS |
|---|---|---|
| 50 | 1,000 | 250 |
| 60 | 950 | 580 |
| 70 | 900 | 750 |
| 80 | 850 | 850 |
| 90 | 800 | 900 |
Table 11.4 Price Level: AD/AS
- Plot the AD/AS curves and identify the equilibrium.
- Would you expect unemployment in this economy to be relatively high or low?
- Would you expect prices to be a relatively large or small concern for this economy?
- Imagine that input prices fall and so AS shifts to the right by 150 units. Identify the new equilibrium.
- How will the shift in AS affect the original output, price level, and employment?