Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 100 and real GDP of $740 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges of the aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $770 billion, and the price level increases to 115. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 85 80 700 710 AS 720 730 740 750 760 770 REAL GDP (Billions of dollars) 780 AD₁ AD₂ 790 800 ?
Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 100 and real GDP of $740 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges of the aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $770 billion, and the price level increases to 115. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 85 80 700 710 AS 720 730 740 750 760 770 REAL GDP (Billions of dollars) 780 AD₁ AD₂ 790 800 ?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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