Answer Happy

Suppose you are given the following macroeconomics data (in million): Aggregate Demand (AD): Short-run Aggregate Supply (SRAS): Long-run Aggregate Supply (LRAS): Y=C+I+G+ NX Y = 250P - 1,000 YFE = $1,250 Where, YFE is real GDP at full employment or the natural rate of unemployment. P is the aggregate price level. Consumption spending: C = 1,200 +0.6* (Y-T) -100 - P spending: G = $80 Taxes: T = $50 Investment: I = $20 Government Import: M = $50 Export: X = $60 1. Find the equation for the AD curve for this economy. Y₁ = a₁-b₁ P₁ where a, and b, are constants to be found. 2. Calculate the short-run equilibrium level of real GDP (YSR) and the aggregate price level (P). 3. Draw a graph representing the AD curve, the SRAS curve, and the LRAS curve. Show all critical points and carefully label your graph (measure the aggregate price level on the vertical axis). 4. Would you expect unemployment in this economy to be relatively high or low? Explain. 5. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 120 at every price level. Identify the new aggregate equilibrium. 6. How will the new AD affect the original output and price level? 7. You are also told that for every $10 million that real GDP is less than full employment real GDP, the unemployment rate increases by 0.1%. How will the new AD affect the unemployment rate? 8. Find the new AD expression, Y₂ = a₂-b₂ P₂ where az and b2 are constants to be found.