--%>
Assignment Help - homework help

Question on hypothetical economy

Consider that aggregate demand and the short run supply for any hypothetical economy are as :

 

1456_Hypothetical economy.png

Why will a price level of 150 not be an equilibrium price level in this economy? Why not 250?

E

Expert

Verified

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.

   Related Questions in Finance Basics

  • Q : What is Sinking Fund Sinking Fund : It

    Sinking Fund: It is a fund or account in which money is deposited at customary intervals to offer for the retirement of bonded debt.

    		•
  • Q : Why do companies extend trade credit

    Accounts receivable are sometimes not gathered. Why do companies extend trade credit while they could insist on cash for all sales? Extending trade credit approximately leads to more sales for all time. If the incremental cash flows, comprisin

    		•
  • Q : Equilibrium GDP for the open economy

    Normal 0 false false

  • Q : Explain intermediation Explain

    Explain intermediation.The financial system makes it achievable for surplus and deficit economic units to come together, exchanging funds for securities, to their mutual profit. While funds flow from surplus economic units to a financial institu

    		•
  • Q : Label equilibrium price P-equilibrium

    Normal 0 false false

    		•
  • Q : Which ratios would long-term bond

    Which ratios would a potential long-term bond investor is most interested in? Describe. Current & potential lenders of long-term funds, such like banks & bondholders, are interested in debt ratios. While a business's debt ratios rise sig

    		•
  • Q : Describe present value of the firms

    Describe the term "present value of the firm's operations" (also known as Enterprise Value). What does this number expose? The current value of the company's free cash flows reveals the market value of the firm's core income generating operatio

    		•
  • Q : How would the market price of a bond be

    All other things held constant, how would the market price of a bond be influenced if coupon interest payments were made semiannually rather than annually?Most of bonds issued in the United States pay interest semiannually (twice per year). Alo

    		•
  • Q : Cyclically adjusted budget Normal 0

    Normal 0 false false

  • Q : Chartered banks Normal 0 false false

    Normal 0 false false