9. Deriving aggregate demand form the income-expenditure model

The following graph shows three planned expenditure lines for an economy at three different price levels. PEuo corresponds to the price level of 120; PEloo corresponds to the price level of 100; PE140 corresponds to the price level of 140. The black line (which starts in the bottom left corner) is a 45-degree line illustrating the set of points for which real income and planned expenditure are equal. 800 700 500 500 400 300 200 100 PLANNED EXPENDITURES (Billions of dollars) 0 l l l l l l l l o 100 200 300 400 500 500 700 500 REAL INCOME (Billions of dollars) The level of equilibrium output at a price level of 100, is V . 0n the following graph, plot the aggregate demand curve that results from varying the price level from 100 to 120 to 140, holding all else equal. Hint: Real income and the quantity of output are equivalent. For example, a real income of $100 billion is the same as a quantity of output of $100 billion. (8 160 -O- 150 Aggregate Demand (AD) 140 130 120 PRICE LEVEL 110 100 0 100 200 300 400 500 600 700 800 QUANTITY OF OUTPUT (Billions of dollars)