1 Verizon 10:56 PM ezto.mheducation.com 6. The accompanying graph depicts a macr
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1 Verizon 10:56 PM ezto.mheducation.com 6. The accompanying graph depicts a macro equilibrium. Answer the questions below based on the information in the graph Instructions: Enter your responses as whole numbers (a) What is the equilbrium rate of GOP? (D ful-employment real GDP is $1,200, what problem does this economy have? c) How lge is the real GOP gap? (d) If the multiplier were equal to 4, how much additional investment would be needed to increase aggregate demand by the amount of the initial GDP gap? (e) What happens to prices when aggregate demand increases by the amount of the initial GDP gap? Ih) Is full employment restored by the AD shift?Explanation / Answer
a. Equilibrium rate of GDP is at point A, wehre the AD intersects AS At this level, the real GDP is $800.
b. Recessionary gap.
The difference between the actual GDP and the potential level of GDP, where the actual GDP < potential GDP is known as recessionary gap.
c. GDP gap = 1200 - 800 = $400.
d. Investment increased required = 400/4 or $100.
If the investment increases by $100, the recessionary gap will close.
e. Prices would rise.
As the investment increases to close the recessionary gap, the AD curve would shift to the right. This increases both the real GDP and price.
f. Yes.
The increase AD would increase the real GDP to $1200, which is the full employment level.
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