KEY QUESTION Suppose that the aggregate demand and supply schedules for a hypothetical economy are as shown below:

Amount of Amount of Real GDP Real GDP Demanded, Price Level Supplied, Billions (Price Index) Billions $100 300 $450 200 250 400 300 200 300 400 150 200 500 100 100

a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output?
Explain.

b. Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?

c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate demand curve as AD1. What factors might cause this change in aggregate demand? What is the new equilibrium price level and level of real output?