Question

below is part of the question i dont get, Aggregate demand is suppose to be negative slope but the function is positive slope, please explain how to interpret this,

Ive searched the internet it give me reasons why it is inverse and downward sloping, I just dont see in the math part how I can interpret this as negative.

Also the explicit price thing is confusing.

**Assume we start from full employment (i.e. output is at
potential), with investment spending I = 3, Government purchases G
= 4, Net exports NX = ?1, and Consumption C = 6 + 0.8Y ? P.
Everything (except MPC of course) is expressed in trillions of
dollars. Note that here we are making the dependence of consumption
on the price level explicit (instead of incorporating it in the
autonomous component, along with the factors - other than current
income - aecting C). Using this information, aggregate demand (AD)
can then be expressed as**

**Y = 6 + 0.8Y ? P + 3 + 4 ? 1**

**= 12 + 0.8Y ? P**

**1. Assume the economy is initially in equilibrium at
potential (so it's in a long-run equilibrium) and the price level
is P ? = 10. What is the level of potential output?**

**2. Assume consumption is now C = 5+0.8Y ?P. Use the
multiplier to compute the overall effect on aggregate expenditure
of the change in autonomous consumption: this represents the amount
by which the the AD curve shifts.**

Answer #1

Assuming the economy is initially in equilibrium at potential (so it's in a long-run equilibrium) and the price level is P ? = 10. the level of potential output is given by

Y= 12+0.8Y ?P

Y- 0.8Y?P = 12

Y=12/(1-0.8?P)

Y= 12/(1-(0.8*10))

Y= 12/(-7)

Y= -1.7143

thus in long equlibrium output is equal to potential ouput

hence potential output is -1.7143

answer (2)

the aggregate expenditure (AE) is given by

AE = C + I

=5+0.8Y?P + 3

= 5 + 0.8*Y*10 + 3

= 8 + 8Y

Now suppose that planned investment increases from the original value of $3 to a new value of $8 —an increase of $5. This increase in planned investment shifts the aggregate expenditures curve upward by $5, all other things unchanged.

The aggregate-demand (AD), short-run aggregate supply (AS), and
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(real) dollars. Note that ASLR is potential output
(Qf).
P
AD
AS
ASLR
60
7
1
3
90
6
2
3
120
5
3
3
140
4
4
3
160
3
5
3
170
2
6
3
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A. Aggregate Demand, Aggregate Supply, and
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For a hypothetical economy, the aggregate-demand
(AD), short-run aggregate supply
(AS), and long-run aggregate-supply
(ASLR) schedules are as follows. The
schedules show the GDP price deflator (P) versus
real GDP (Q), with Q measured in
billions of constant dollars.
P
AD
AS
ASLR
80
30
22
30
90
28
24
30
100
26
26
30
110
24
28
30
120
22
30
30
130
20
32
30
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An increase in aggregate demand (AD) can cause
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Flag this Question
Question 22 pts
Economic growth is shown in the AS-AD model as a
leftward shift in the short run AS curve.
rightward shift in the AD curve.
rightward shift in the long run AS curve.
Flag this Question
Question 32 pts
In the long run, the most important factor that shifts the
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