1. The following table shows the aggregate demand - aggregate supply schedules for a hypothetical economy. Use the table to answer the following questions: a. Original econotry (4 pts) i. Make a sketch of the economy depicted in the able above. ii. Identify the equilibrium price level and quantity of real domestic output on the graph. iii. Label the output demand curve as AD1 and the output supplied curve as SRAS:. b. Suppose that Congress passes a spending bill to combat a reeession so that the quantity of real domestic output demanded changed by $425 billion at each price level. (4 pts.) i. Fill out the table below to reflect this change. Refer back to the first table as a starting point. You need to fill in both empty columns. ii. Add the new curve to your sketch from part a and label it. ii. What would be the new equilibrium price level and quantity of real domestic output? Identify these on the graph, too. c. Suppose the cconomy's potential GDP is 2100 . (5 pts.) i. Draw in the LRAS curve on the graph in part a ii. How big is the output gap after the change in the real donsestic output demanded occurs in part b? iii. And is the gap positive or negative? (meaning is the gap a recessionary gap or an inflationary gap?) iv. Explain where unemployment is in part b, compared where unemployment was in part a. Also compare unemployment in part b. to full employment at potential GDP? v. Explain what has happened to the price level as the cconomy goes from the outeome in part a. to the outcome in part b. and compare prices in part b. to prices at potential GDP. d. If there is no policy change and the econony is allowed to adjust on its own from the equilibrium in part b, what is the correction that the market makes on its own from your equilibrium in part b and what is the eventual final equilibrium price and quantity? You can estimate your outcome with your graph in part a. (2 pts) e. Suppose policy makers don't want to wait until the market adjusts on its own and they enact fiscal policy. What kind of fiseal policy can policymakers enact and what three forms could they choose to help solve this problem? (2 pts) 1. The following table shows the aggregate demand - aggregate supply schedules for a hypothetical economy. Use the table to answer the following questions: a. Original econotry (4 pts) i. Make a sketch of the economy depicted in the able above. ii. Identify the equilibrium price level and quantity of real domestic output on the graph. iii. Label the output demand curve as AD1 and the output supplied curve as SRAS:. b. Suppose that Congress passes a spending bill to combat a reeession so that the quantity of real domestic output demanded changed by $425 billion at each price level. (4 pts.) i. Fill out the table below to reflect this change. Refer back to the first table as a starting point. You need to fill in both empty columns. ii. Add the new curve to your sketch from part a and label it. ii. What would be the new equilibrium price level and quantity of real domestic output? Identify these on the graph, too. c. Suppose the cconomy's potential GDP is 2100 . (5 pts.) i. Draw in the LRAS curve on the graph in part a ii. How big is the output gap after the change in the real donsestic output demanded occurs in part b? iii. And is the gap positive or negative? (meaning is the gap a recessionary gap or an inflationary gap?) iv. Explain where unemployment is in part b, compared where unemployment was in part a. Also compare unemployment in part b. to full employment at potential GDP? v. Explain what has happened to the price level as the cconomy goes from the outeome in part a. to the outcome in part b. and compare prices in part b. to prices at potential GDP. d. If there is no policy change and the econony is allowed to adjust on its own from the equilibrium in part b, what is the correction that the market makes on its own from your equilibrium in part b and what is the eventual final equilibrium price and quantity? You can estimate your outcome with your graph in part a. (2 pts) e. Suppose policy makers don't want to wait until the market adjusts on its own and they enact fiscal policy. What kind of fiseal policy can policymakers enact and what three forms could they choose to help solve this problem? (2 pts)
