Price level708090100110120130140Real GDPdemanded(billions of 2009dollars)825750675600525450375300Real GDPsupplied (billionsof 2009 dollars)375450525600675750825900The table above shows Purpleland's economy aggregate demand and supplyschedules. Purpleland's potential GDP is $675 billion.1. In a short-run equilibrium, which is the value of real GDP and price levelin Purpleland?2. What is the value of the long-run equilibrium real GDP?3. Is Purpleland's short-run equilibrium a full-employment equilibrium,below full-employment equilibrium, or above full-employmentequilibrium? At this short-run equilibrium, does Purpleland have anoutput gap, if any, which type, a recessionary gap or an inflationary gap,and how much is this gap? Please briefly explain.4. Suppose aggregate demand increases by $150 billion (hint: AD shifts by$150 billion horizontally.) What are the new equilibrium real GDP andthe price level in the short run?5. Is Purpleland's new short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or abovefull-employment equilibrium? At this new short-run equilibrium, doesPurpleland have an output gap, if any, which type, a recessionary gap oran inflationary gap, and how much is this gap?

The equilibrium is reached where the aggregate demand and aggregate supply are equal.

Answered: Price level 70 80 90 100 Real GDP…

Price level 70 80 90 100 Real GDP demanded (billions of 2009 dollars) 825 750 675 600 Real GDP supplied (billions of 2009 dollars) 375 450 525 600

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter8: Aggregate Demand And The Powerful Consumer

Section8.A: National Income Accounting

Problem 3TY

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Question

Price level
70
80
90
100
110
120
130
140
Real GDP
demanded
(billions of 2009
dollars)
825
750
675
600
525
450
375
300
Real GDP
supplied (billions
of 2009 dollars)
375
450
525
600
675
750
825
900
The table above shows Purpleland's economy aggregate demand and supply
schedules. Purpleland's potential GDP is $675 billion.
1. In a short-run equilibrium, which is the value of real GDP and price level
in Purpleland?
2. What is the value of the long-run equilibrium real GDP?
3. Is Purpleland's short-run equilibrium a full-employment equilibrium,
below full-employment equilibrium, or above full-employment
equilibrium? At this short-run equilibrium, does Purpleland have an
output gap, if any, which type, a recessionary gap or an inflationary gap,
and how much is this gap? Please briefly explain.
4. Suppose aggregate demand increases by $150 billion (hint: AD shifts by
$150 billion horizontally.) What are the new equilibrium real GDP and
the price level in the short run?
5. Is Purpleland's new short-run macroeconomic equilibrium a full-
employment equilibrium, below full-employment equilibrium, or above
full-employment equilibrium? At this new short-run equilibrium, does
Purpleland have an output gap, if any, which type, a recessionary gap or
an inflationary gap, and how much is this gap?

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