Plot an AD/AS diagram from the data above. Identify the equilibrium. Would you expect unemployment in this economy to be relatively high or low? Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. How will the shift in AD affect the original output, price level, and employment?

The imaginary country of Jasa Island has the aggregate supply and aggregate demand curves given in the table below.

Price level                 Aggregate demand           Aggregate supply

100                                        700                                             200

120                                        600                                             325

140                                        500                                             500

160                                        400                                             570

180                                        300                                             620

REQUIREMENTS:

• Plot an AD/AS diagram from the data above. Identify the equilibrium.
• Would you expect unemployment in this economy to be relatively high or low? Would you expect concern about inflation in this economy to be relatively high or low?
• Imagine that consumers begin to lose confidence about the state of the economy, so AD becomes lower by 275 at every price level.
• Identify the new aggregate equilibrium. How will the shift in AD affect the original output, price level, and employment?