Jump to... Suppose that the following equations represent a hypothe omy Map AD i
ID: 1110343 • Letter: J
Question
Jump to... Suppose that the following equations represent a hypothe omy Map AD is P 100-2Y SRAS is P = 40 + Y LRAS is Y= 30 Please make sure you have answered every Scroil down for feedback on the last question. uestion Where P is the aggregate price level and Y is real GDP in billions of dollars. Graph the aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves in the graph below. Th en, answer the following questions. 150 140 130 120 110 The economy is currently experiencing a(n) Scroll down to complete the question. gap, SRAS Suppose that the government wishes to close the output gap through fiscal policy appropriate policy choice for their goal? Which of the following would be an O reduce government spending. O increase taxes O decrease the money supply AD 0 5 10 15 20 25 3 35 40 45 50 55 60 Y (billions of $ the output gap. ppose the government is successful in is the new aggregate demand answer as price being a function of output. (do not include AD as 100 AutoC ing, Inc. wichita.edu 6
Explanation / Answer
For part 3, since there is a deflationary gap, government trasfer through expansionary fiscal policy moves the AD curve to the right until the equilibrium is reached when AD=LRAS.
LRAS: Y =30
AD: P=100-2Y
The equation for the AD curve is given by y=mx + c
The new equlibirum when Y= 30 , the Price is = 70 ( SRAS: P=40+30).
Since the shift in AD curve doesnt change the slope of the curve, the gradient remains -2,
Hence the new AD curve is calculated as
P=-2Y + C
70=-2x30 + C. Therefore, C= 130.
Thus, the new equation is AD: P=130-2Y.
Another way to find the intercept is by reading the graph as it is drawn to scale. When shifted towards the right until AD reaches Y=30 and P=70, we can see that the AD curve intersects the Y axis at 130.
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