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5. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (ADl) and aggregate supply (AS) curves for a hypothetical economy with fullemployment output of $11 trillion. 130 - AS AD 125 ~ 1 N32 120 + '9 E \"5 T + Macro Eq2 J g 11:] ~ ' El I \"J I E 1115 + I \"L I 1110 + I I I I I 95 - ' ' I I an 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (T rillions of dollars) Suppose the level of real GDP supplied by rms is $10 billion and the price level is 102. In this case, the quantity of real GDP supplied is V the real GDP demanded at a price level of 102, and rms will expenenoe an unplanned V in inventories. Firms will respond to the change in inventories by producing V output until the economy reaches macroeconomic equilibrium at a price level of V and real GDP of V . Suppose consumers and businesses become less optimistic about future economic conditions, causing the aggregate demand curve to decrease by $1.5 trillion at each price level. Use the green line {triangle symbols) to show me new aggregate demand curve (A132). Be sure that AD: is parallel to ADI (you can click on ADI to see its slope). Then use the purple drop lines (diamond symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. The decrease in aggregate demand leads to a movement along the V range of the aggregate supply curve, causing the equilibrium price level to V and the equilibrium level of real GDP to V . 6. Nonprice-level determinants of aggregate supply The following graph shows an increase in aggregate supply (AS) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1 to AS2, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. 200 AS 175 AS2 150 125 100 PRICE LEVEL (CPI) 75 50 0 50 100 150 200 250 300 350 400 REAL GDP (Billions of dollars) The following table lists several determinants of aggregate supply. Complete the table by indicating the changes in the determinants necessary to increase aggregate supply. Determinant Change Needed to Increase AS Nominal Wage Rate Tax Rates Technology