Question on hypothetical economy
Consider that aggregate demand and the short run supply for any hypothetical economy are as : Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?
Consider that aggregate demand and the short run supply for any hypothetical economy are as :
Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?
Expert
At price level of 150, real GDP supplied maximum is $200 billion, less than the real GDP demanded of $400 billion. The shortage of real output will drive the price level up. At price level of 250, real GDP supplied is $400 billion that is more than the real GDP demanded of $200 billion. The surplus of real output will drive down the price level. Equilibrium takes place at the price level at which AS & AD intersect.
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