Add the following aggregate supply and demand schedules to the example in Test Yourself Question 2 of Chapter 9 to see how inflation affects the multiplier:

Draw these schedules on a piece of graph paper.
a. Notice that the difference between columns (2) and (3), which show the aggregate demand schedule at two different levels of investment, is always $200. Discuss how this constant gap of $200 relates to your answer in the previous chapter.
b. Find the equilibrium GDP and the equilibrium price level both before and after the increase in investment. What is the value of the multiplier? Compare that to the multiplier you found in Test Yourself Question 2 of Chapter9.

Transcribed Image Text:

Aggregate Aggregate Demand Demand When When Prie Invesdment Investment Aggregate Level Is S240 S260 Supply 90 $3,860 $4,060 $3,660 95 3,830 4,030 3,730 100 3,800 4,0003,800 105 3,770 3,970 3,870 110 3,740 3,940 3,940 115 3,710 3,910 4,010