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pls see attached AD: P = 200 - 0.1Y Suppose research has uncovered the following aggregate demand and supply functions for an economy: AS: P

pls see attached

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AD: P = 200 - 0.1Y Suppose research has uncovered the following aggregate demand and supply functions for an economy: AS: P = 20 + 0.2Y a) Draw the AD and AS functions to illustrate the short-run equilibrium real GDP and price. AD AD AS New AD 240 210 180- Price level 150- 120- 90- 60- 30- 400 800 1200 1600 2000 2400 Reset Real GDP b) What are the short-run equilibrium values for real GDP and the price level from the graph above? Let us also assume that this short run equilibrium is also the long run equilibrium, that is, Y=Yp. Real GDP = 0 Price level = 0 c) Suppose a fall in demand for new houses reduced the investment component aggregate expenditure, and reduced AD at each price level by 1,000. Draw the new AD curve in the graph above. d) Complete the following paragraph.d) Complete the following paragraph. To conclude, the fall in AD due to reduced the investment component aggregate expenditure will create a/an (select one) gap, which will cause unemployment to (select one) relative to the natural rate. If the government wants to close this gap, it should (select one) government spending and (select one) taxes. If the central bank wants to close this gap, it should (select one) interest rates. If neither the government nor the central bank responds to the gap, input costs such as wages will eventually (select one) and the (select one) will shift to the (select one) to close the gap. This process, however, may take a very long time to complete

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