Price Level AS (S) AD ($) 60 11 27 80 16 26 100 20 25 120 23 23 140 25 20 160 26 16 180 27 13 1. Graph aggregate supply (AS) curve and aggregate demand (AD) curve. 2. At price level = 160, what will happen to the price level - (stays same or decreases or increases)? Why? 3. What is the equilibrium price level and the equilibrium GDP? 4. Assume potential GDP is $20. The economy in #3 is: ( Recessinary Inflationary Ideal/desirable ) 5. If aggregate demand decreases by $5 at every price level, the economy will have a new aggregate demand curve. Add the new aggregate demand curve to your graph (drawn in #1) 6. With the new AD curve, what is the equilibrium price level and the equilibrium GDP? 7. Assume potential GDP is $20. The economy in #6 is: ( Recessinary Inflationary Ideal/desirable ) 8. Do you agree or disagree with the Keynesian view? Why? Write your opinion in one or two paragraphs. 9. "Tax financing" and "deb financing" have a similar effect on the spending multiplier. Explain concisely.

Price Level AS (S) AD ($) 60 11 27 80 16 26 100 20 25 120 23 23 140 25 20 160 26 16 180 27 13 1. Graph aggregate supply (AS) curve and aggregate demand (AD) curve. 2. At price level = 160, what will happen to the price level - (stays same or decreases or increases)? Why? 3. What is the equilibrium price level and the equilibrium GDP? 4. Assume potential GDP is $20. The economy in #3 is: ( Recessinary Inflationary Ideal/desirable ) 5. If aggregate demand decreases by $5 at every price level, the economy will have a new aggregate demand curve. Add the new aggregate demand curve to your graph (drawn in #1) 6. With the new AD curve, what is the equilibrium price level and the equilibrium GDP? 7. Assume potential GDP is $20. The economy in #6 is: ( Recessinary Inflationary Ideal/desirable ) 8. Do you agree or disagree with the Keynesian view? Why? Write your opinion in one or two paragraphs. 9. "Tax financing" and "deb financing" have a similar effect on the spending multiplier. Explain concisely.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 42CTQ: On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because...

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