The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. 160 Aggregate Demand 150 140 130 120 PRICE LEVEL ( CPI) 110 100 0 100 200 300 40 0 500 600 700 800 REAL GDP (Billions of dollars)The following graph shows an increase in aggregate supply (Ab ) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1 to 432, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. 200 AS 175 AS ? 150 125 100 PRICE LEVEL (CPI) 75 50 25 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 Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. O A lower price level increases the consumption of complementary goods. O A higher price level makes domestically produced goods more expensive than foreign goods. O A lower price level leads to a lower interest rate. As the aggregate price level rises, the purchasing power of households' saving balances will , causing the quantity of output demanded to This phenomenon is known as the V effect.3. Changes in aggregate demand The following graph shows an aggregate demand curve (AD) illustrating the inverse relationship between the price level and the quantity of real output in the United States. Show the effect of the following scenario on the aggregate demand curve by either dragging the curve or moving the point to the appropriate position (do not perform both actions as only one is correct). The European Union, a major trading partner of the United States, experiences a recession, O AD O PRICE LEVEL AD REAL GDPThe following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD, to AD)2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. (?) 170 160 150 140 130 PRICE LEVEL (CPI) 120 AD 2 110 AD 1 100 90 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars ) The following table lists several determinants of aggregate demand.The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Consumer Expectations Taxes Interest Rates Incomes in Other CountriesComplete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought. Assumption Classical Keynesian Product prices and wages tend to be inflexible. O O Only an increase in aggregate demand can move an economy out of a recession and back to potential real GDP quickly. O O The following graph shows the aggregate demand (AD)) and aggregate supply (AS) curves for a hypothetical economy that is currently operating below its full-employment output level. That is, the economy is currently in a recession. The aggregate supply curve (AS) in this diagram is consistent with the view of aggregate supply. According to this viewpoint, the government should spending in response to the recession. Shift the appropriate curve on the graph to illustrate the impact of this change in government spending.Shift the appropriate curve on the graph to illustrate the impact of this change in government spending. O AD AS AS PRICE LEVEL AD REAL GDP (Trillions of dollars) The prescribed change in government spending will: O Move the economy toward full employment and increase the price level O Move the economy toward full employment with no change in the price level Increase the price level and decrease real GDPThe following graph shows the aggregate demand (AD)1) and aggregate supply (AS) curves for a hypothetical economy with full-employment output of $11 trillion. 130 AS A AD 1 125 AD 2 120 115 Macro Eq 2 PRICE LEVEL (CPI) 110 105 100 95 90 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars)Suppose the level of real GDP supplied by firms is $10 trillion and the price level is 102. In this case, the quantity of real GDP supplied is the real GDP demanded at a price level of 102, and firms will experience an unplanned in inventories. Firms will respond to the change in inventories by producing _ output until the economy reaches macroeconomic equilibrium at a price level of _ and real GDP of 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 the new aggregate demand curve (AD)). Be sure that AD, is parallel to AD1 (you can click on ADD, 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 range of the aggregate supply curve, causing the equilibrium price level to and the equilibrium level of real GDP to