Refer to the data below. Real Output Demanded, Billions Price Level Real Output
ID: 1095952 • Letter: R
Question
Refer to the data below.
Real Output Demanded, Billions
Price Level
Real Output Supplied, Billions
$506
108
513
508
104
512
510
100
510
512
96
507
514
92
502
Instructions: Enter your answers as whole numbers.
a. What is the equilibrium level of output?
$___________ billion.
What is the equilibrium price level?
_________________.
b. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Insert the new values for real output demanded in the table below.
Real Output Demanded, Billions
New Real Output Demanded, Billions
Price Level
Real Output Supplied, Billions
$506
______________
108
513
508
______________
104
512
510
______________
100
510
512
______________
96
507
514
______________
92
502
What is the new equilibrium level of output?
$______________ billion.
What is the new equilibrium price level?
___________________ .
By what percentage will the price level increase?
____________ percent.
Will this inflation be demand-pull inflation or will it be cost-push inflation?
SELECT ANSWER ( Cost-push inflation OR Demand-pull inflation.) ?
c. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand?
$ _____________billion.
d. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?
SELECT ANSWER ( Increase OR Decrease.) ?
Real Output Demanded, Billions
Price Level
Real Output Supplied, Billions
$506
108
513
508
104
512
510
100
510
512
96
507
514
92
502
Explanation / Answer
a. equilibrium level of output
$510 billion.
equilibrium price level
100.
at equilibrium demand is equal to supply.
b.
equlibrium output=513
equilibrium price =108
price rise by 8%
c. GDP GAP = 513-510=3
d. Decrease.
since due to excessive demand beyond full employemnt level, their is inflationary pressure. Output rises only in nomial term not in real term. To curb this government has to decrease the aggregate demand by reducing government expenditure.
Real Output Demanded, Billions New Real Output Demanded, Billions Price Level Real Output Supplied, Billions $506 $513 108 513 508 $515 104 512 510 $517 100 510 512 $519 96 507 514 $521 92 502