Question

Refer to the data in the table given below. Suppose that the present equilibrium price level and level of real GDP are 100 and $215, and that data set A represents the relevant aggregate supply schedule for the economy.

(A)		(B)		(C)
Price Level	Real GDP	Price Level	Real GDP	Price Level	Real GDP
100	215	110	240	110	290
100	240	100	240	100	265
100	265	95	240	95	240
100	290	90	240	90	215

a. What must be the current amount of real output demanded at the 100 price level?

Real output demanded = $

b. If the amount of output demanded increases by $75 at the 100 price level shown in A, what will be the new equilibrium real GDP?

The new equilibrium level of real GDP = $

In business cycle terminology, what would economists call this change in real GDP? (Click to select): Recession or Expansion

Answer 1

Answer: -

(A). Equilibrium aggregate supply = aggregate demand. Hence, the real output demanded is also equal $225

(B). If output demanded increase by $75, the new level of demand is $200. Because the price level does not change the quantity supplied would also increase by $75 or fell by $25.

The new equilibrium level of real GDP is $200. This decline in output is a recession.

(C). In business cycle terminology, the economists call this change in real GDP is expansion. The reason is the increase in level of GDP.