Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown at the top left of the next page. LO3

a. Use the data above to graph the aggregate demand and aggregate supply curves. What is 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. Sketch in the new aggregate demand curve as AD 1 . What is the new equilibrium price level and level of real output?

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(A) (B) (C) Price Level Real GDP Price Level Real GDP Price Level Real GDP 110 275 100 200 110 225 100 250 100 225 100 225 95 225 100 250 95 225 90 200 100 275 90 225