Question

The imaginary country of Harris Island has the

aggregate supply and aggregate demand curves as Table

11.3 shows.

Price Level AD AS

100 700 200

120 600 325

140 500 500

160 400 570

180 300 620

Table 11.3 Price Level: AD/AS

a. Plot the AD/AS diagram. Identify the

equilibrium.

b. Would you expect unemployment in this

economy to be relatively high or low?

c. Would you expect concern about inflation in this

economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence

about the state of the economy, and so AD

becomes lower by 275 at every price level.

Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original

output, price level, and employment?​

Answer 1

Answer:

. Plot the AD/AS diagram. Identify the equilibrium.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original output, price level, and employment?

Step-by-step solution:

Step 1 of 5

a.

The required AD/AS diagram from the given data is created as shown be

Answer 2

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