Quantitative Literacy Assignment -Aggregate Supply & Aggregate Demand

QUESTION

Quantitative
Literacy Assignment
Aggregate
Supply & Aggregate Demand

Consider
the table below for the aggregate supply (AS), and aggregate demand (AD), for goods
and services in the United States.

Price Level – P
(Y Axis)

Real GDP Demanded in
billions (AD)

Real GDP Supplied
in billions (AS)

50

16,300

15,100

60

16,200

15,200

70

16,100

15,300

80

16,000

15,400

90

15,900

15,500

100

15,800

15,600

110

15,700

15,700

120

15,600

15,800

130

15,500

15,900

140

15,400

16,000

150

15,300

16,100

160

15,200

16,200

170

15,100

16,300

1. On the grid below, create a graph depicting
the U.S. economy using the table above, and plot the AD and the AS. (Use EXCEL to plot the graph on a separate
sheet if possible, but not required. Use
titles on the graph, axes, and curves; Use X axis for Real GDP and Y axis for
price level.).

2.
a. Calculate the slope of the AD curve using data in the
table/graph.

b.
Calculate the slope of the AS curve using data in the table/graph.

c. Using 3-4 well-written sentences and numerical examples in the table
for the each of the following two questions.

(i) Explain why the AD
curve has the slope you calculated as a result of the “wealth effect”.

(ii) Explain why the AS
curve has the slope you calculated as a result of the “sticky price
theory”.

3. Using the graph created from the data in the
table, determine the short-run equilibrium price level and level of
output. Explain using 2-3 well written
sentences how this equilibrium point is determined and include the numerical
values.

4. From your graph, explain using 2-3 sentences how
an increase in real GDP could occur in the economy and give a specific written real
world scenario or example. Include the resulting effect on the price
level (P) and give the correct terminology that corresponds to this type of
price level change.

5.
On your existing graph, draw what would happen if: 1) crude oil prices fell slightly, and
2) stock and housing prices declined sharply. Explain the result using 2-3 sentences and
include numerical examples from your new graphical outcome. Compare the new position of the aggregate supply
and demand curves, and the new short-run equilibrium compared to the old one.

ANSWER:

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