Quantitative Literacy Assignment - Aggregate Supply & Aggregate Demand
Consider the table below for the aggregate demand (AD) for and the aggregate supply (AS) of 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, carefully plot both the AD and the AS curves of the U.S. economy. Use a title for your graph and label the axes and curves. Use the X axis for Real GDP and the Y axis for the price level.
2. a. Calculate the slope of the AD curve using the data in the table/graph.
b. Calculate the slope of the AS curve using the data in the table/graph.
c. Use 3-4 well-written sentences and numerical examples from the table for the each of the following two questions.
(i) Explain the slope of the AD curve based on the "wealth effect."
(ii) Explain the slope of the AS curve based on the "sticky input price effect."
3. Use the AD-AS graph in Question 1 to identify the short-run equilibrium price and output levels. Explain, using 2-3 well written sentences, why this particular price-output combination, as opposed to any other, is the equilibrium outcome. Use numerical values for the price level and output in your explanation.
4. Refer to your graph. Explain, in 2-3 well-written sentences, a specific real world scenario or example that can lead to an increase in output (real GDP) from its current equilibrium level. What is the resulting effect on the price level (P) in your scenario? What is the correct terminology that corresponds to this type of price level change (inflation)?
5. Reproduce your graph in Question 1 on the grid blow. Now suppose that (1) crude oil prices falls slightly and (2) stock and housing prices decline sharply. Correctly translate (draw) the effects of these changes into shifts in AD and AS curves. Explain, using 2-3 well written sentences and numerical values, what happened to AD and AS and how the new equilibrium price and quantity levels compare with the old ones.