Suppose AE = 0.50 Y + 500. If GDP = $1,000, and There will be excess supply, so inventory will accumulate and firms will reduce output next period. There will be excess demand, so inventory will shrink and firms will increase output next period. There will be neither excess demand nor excess supply, so Y = $1,000 is the equilibrium level of GDP.
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- Based on the data in the table and graph below, identify the equilibrium GDP: Price Level Real GDP/Output in $ billion Real GDP/Spending in $ billion 80 100 180 90 120 160 100 140 140 110 160 125 120 170 115 130 175 105 140 178 100 Real GDP ($ billion) is charted on the x-axis (range 80-200). Price Level is charted on the y-axis (range: 60-150). The AS curve begins at (80,100) and ends at (179, 140), ascending up left to right. This curve intersects with the AD curve at (140,100). The AD curve begins at point (100, 140) and ends at (180, 80), descending left to right.What is the quantity of real GDP produced if the real wage rate is at the full-employment equilibrium level? If the real wage rate is at the full-employment equilibrium level, real GDP is _______. A. at its highest attainable and efficient level B. equal to potential GDP, which is the most that can be produced C. at or below potential GDP depending on the level of employment D. equal to potential GDP, which is efficient but is not the most that can be producedBased on the data in the table and graph below, identify the equilibrium GDP: Price Level Real GDP/Output in $ billion Real GDP/Spending in $ billion 80 100 180 90 120 160 100 140 140 110 160 125 120 170 115 130 175 105 140 178 100
- Potential real GDP is defined as: Group of answer choices The quantity of output that the economy can produce when it is above the natural rate of unemployment. The quantity of output that the economy can produce when it is at less than potential employment of its resources. The macro equilibrium The quantity of output that the economy can produce when it is at full employment of its labor and physical capital.Suppose that a hypothetical economy has the following relationship between its real output and the input quantities necessary for producing that output: a. What is productivity in this economy?b. What is the per-unit cost of production if the price of each input unit is $2?c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy’s aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output?d. Suppose that the increase in input price does not occur but, instead, that productivity increases by 100 percent. What would be the new per-unit cost of production? What effect would this change in per-unit production cost have on the economy’s aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the level of real output?Instructions: Enter your answers as whole numbers. A) What are the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? B)If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? If the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? C) Suppose that buyers desire to purchase $ 200 billion of extra real output at each price level. What are the new equilibrium price level and level of real output?
- Inflationary GDP is the amount by which equilibrium real GDP falls short of the full employment level of GDP. True or FalseEquilibrium exists at any output-income level in which the output level gives rise to an employment level which gives rise to an income level which gives rise to a total spending level which is just sufficient to clear total output off the market. Why is this a true statement?The government is considering raising the tax rate on labor income. Explain the supply-side effects of such an action and use appropriate graphs to show the directions of change, not exact magnitudes. What will happen to: The supply of labor and why? The demand for labor and why? Equilibrium employment and why? The equilibrium before-tax wage rate and why? The equilibrium after-tax wage rate and why? Potential GDP? Explain your response with specifics and provide examples.
- What occurs in the labor market when the real wage rate is above the full-employment equilibrium level? When the real wage rate is above the full-employment equilibrium level, _______.Which of the following is true? A. Potential GDP decreases as the price level increases. B. At full employment, aggregate supply is equal to potential GDP. C. The potential GDP line has a negative slope. D. Potential GDP increases as the price level increases. E. Aggregate supply is another name for potential GDP.Consider an economy similar to that in the preceding question in which investment is also $200, government purchases are also $500, net exports are also $30, and the price level is also fixed. But taxes now vary with income and, as a result, the consumption schedule looks like the following: GDP Taxes DI C $1,360 $320 $1,040 $810 1,480 360 1,120 870 1,600 400 1,200 930 1,720 440 1,280 990 1,840 480 1,360 1,050 Find the equilibrium graphically. What is the marginal propensity to consume? What is the tax rate? Use your diagram to show the effect of a decrease of $60 in government purchases. What is the multiplier? Compare this answer to your answer to Test Yourself Question 1. What do you conclude? GDP…