--%>

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 : Why accounting profits and cash flows

    Normal 0 false false

  • Q : Problem on banks Customers arrive at a

    Customers arrive at a bank with 2 tellers. The manager took the following data for 11 customers during a busy time. The manager has asked you to:(a) Create an event log. (b) Calculat

  • Q : Factors affecting option of maximum

    Describe the factors affecting the alternative of a maximum cash balance amount. The maximum cash balance amount is finding out by obtainable investment opportunities, the expected return on investments, and the transaction cost of making invest

  • Q : Describes why reserves are an asset to

    Normal 0 false false

  • Q : Reducing payroll costs It is likely

    It is likely that in the next few years, employers will face incresing pressures to reduce their payroll costs. critically evaluate the range of ways by which payroll costs can be reduced whilst taking into account the need to maintain a focus on the

  • Q : Impact on India on Global Economic

    Explain the impact on India on Global Economic crisis ?

  • Q : Production possibilities curve based

    Given is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Illustrates these data graphica

  • Q : Define Veto Veto : It is the Governor's

    Veto: It is the Governor's Constitutional authority to reduce or remove one or more items of appropriation while accepting other parts of a bill.

  • Q : Price The Audiology Department at

    The Audiology Department at Randall Clinic offers many services to the clinic’s patients. The three most common , along with cost and utilization data, are as follows: Service Variable cost per service Annual Direct Fixed cost Annual Number of Visits Basic Examination $5. $50,000 3,000 Advanced

  • Q : Inflationary expenditure gap or

    Normal 0 false false