Exercises — Consumption and Investment Aggregate demand and aggregate supply Macroeconomic equilibrium 1. True / False Questions 1. If DI is $275 billion and the APC is 0.8, we can conclude that saving is $55 billion. “T Fite MPC is constant at various levels of income, then the APC must also be constant at all of those income levels. F 3. If the Hennige family's marginal propensity to consume is 0.70, then it will necessarily consume seven-tentis of its total income, T 4. The slope of the consumption schedule is measured by the MPC. TT 5. A decline in the seal interest rate will shift the investment demand curve ta the right. 77 6. The marginal propensity to consume shows the fraction of any level of total income that is consumed. F 7. If people saved more of any extra income that they received, then the consumption schedule would become flater, > 8. If the consumption schedule becomes steeper, then the saving schedule will become steeper also. F” 9. If households see the value of their financial assets increase significantly, then the saving schedule will shift upward. FF 10. The wealth effect will tend to decrease cousumption and increase saving. F IL. An imerease in taxes will shift both the cousumption schedule and the saving schedule down T 12. Ifthe real rate of interest increases, then the level of investment inthe economy will also increase. FF 13. An inerease in business taxes will tend to shift the investment-demand curve rightward. 14, Investment is not affected by current profits, it is affected by expected future profits only. 15, The interest-rate effect is one of the determinants of aggregate demand, € 16. Other things equal, an increase in productivity will shift the short-run aggregate supply curve rightward. T 17. An inerease in imports (independent of a change ‘in the US. price level) will increase both U.S. aggregate supply and U.S. ageregate demand. 18. An increase in business excise taxes will shift the aggregate supply curve leftward. T 19. The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve. T 20, The aggregate demand curve shows that when the price level rises, the quantity of real output demanded decreases. T 21, An increase in real interest rates will increase investment and aggregate demand 22. A decrease in personal and business taxes will cause government spending and aggregate demand to decrease. F 23. Depreciation of the dollar relative to foreign currencies will tend to increase net exports and tus aggregate demand of the U.S. economy. 24, The long-run aggregate supply curve is upward sloping. 25, When there is an increase in aggregate demand in. the short rum, there will be an inetease in the price Jevel but not in the level of output or employment. FIL Multiple Choice Questions 1. If Carol's disposable income inereases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to A. save is three-fifths masuane is one-half. consume is three-fifths. consume is two-fifths 2. The MPC can be defined as that fraction of a change in income that is not spent. B change in income that is spent. C. given total income that is not consumed. D. given total income that is consumed. disposable income goes up, the & erage propensity to consume falls. ‘average propensity to save falls. C. volume of consumption declines absolutely. D. volume of investment diminishes. 4, decline in disposable income A. increases consumption by moving upward along a specific consumption schedule B. decreases consumption because it shifts the consumption schedule downward. decreases consumption by moving downward along ‘a specific consumption schedule, D. increases consumption because it shifis the consumption schedule upward, 5. The consumption schedule shows A a ditect selationship between agaregate consumption and accumulated wealth a direct relationship between ageregate Consumption and ageregate income. C. an inverse relationship between ageregate consumption and accumulated financial wealth D. ax inverse relationship between agaregate coustumption and the price level, © te relationship between consumption and 4isposable income is sueh that ‘A. an inverse and stable relationship exists between constuption and income, B. a direct, but very volatile, relationship exists between consumption and income. C. a direct and relatively stable relationship exists between consumption and income. D. the two are usually equal. 7. If the MPC is 0.8 and disposable income is $200, et (fan and saving camot be determined from information given B. saving will be $20. . personal consumption expenditures must be $160, D. saving will be $40. 8. Which one of the following will cause a movement down along an economy's consumption schedule? A an increase in stock prices B. a decrease in stock prices am inetease in consumer indebtedness ‘Dj decrease in disposable income Consumption 0 Disposable Income 9. Refar to the given diagram, which shows consumption schedules for economies A and B. We can say that the A. MPC is greater in B than in A. B, APC at any given income level is greater in B than iA. MPS is smaller in B than in A. }MPC is greater in A than inB.10. At the point where the consumption schedule intersects the 45-degree line, Aathe MPC is 1.00 (ie ste is 1.00, saving is equal to consumption D. the economy is in equilibriun, IL. Tessa's break-even income is $10,000, and her MPC is 0.75. If her actual disposable income is 16,000, her level of Gloom speuding will be $14,500. B. consumption spending will be $15,500 C. consumption spending will be $13,000. D. saving will be $2,500. 12. Suppose a family’s consumption exceeds. its disposable income. This means that its A.MPC is greater than 1 B, MPS is negative > is greater than 1. D. APS is positive 13. Which ofthe following is comeet? @)rc + MPs = APC + APS. B. APC + MPS = APS + MPC C.APC + MPC= APS + MPS, D. APC -APS = MPC - MPS. 14. Dissaving occurs where A income exceeds consumption. B. saving exceeds consumption. ‘onstumption exceeds income, D. saving exceeds income 15. Given the consumption schedule, it is possible to graph the relevant saving schedule by ‘A. subtracting the MPC fiom 1 at each level of income. B. subtracting investment from consumption at each level of GDP. C. plotting the horizontal differences between the ‘onstmption schedule and the 4S-degree line. plotting the vertical differences between the Consumption schedule and the 45-degree line. 16. Which one of the following will cause a movement up along an economy’s saving schedule? _ ai iictease in household borrowing (7 ‘an inerease in disposable ineome an inerease in stock prives D. an increase in interest rates Cc, Consumption 0 Income 17. Refer to the given graph. A movement fiom b t0 ong C1 might be eaused by a(n) ecession, Bo wealth effect of an increase in stock market prices. C. decrease in income tax rates. D. itetease in saving. 18. Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n) recession wealth effect of an inerease in stock market prices. . Increase In income tax rates. D. inerease in saving. 19. Refer to the given graph. A shift of the consumption schedule from C2 to Cl might be caused by a(n) increase in real GDP. @incs ‘wealth effect, caused by a decrease in stock market prices, C. decrease in ineame tax rates. D. decrease in saving 20, Au upward shift of the saving schedule suggests A, nothing with respect to changes in the APC and APS; only that the MPS has changed. B. that the APC and APS have both decreased at each GDP level C. that the APC and APS have both increased at each GDP level ‘that the APC has decreased and the APS has inereased at each GDP level.21. Which of the following will not tend to shift the consumption schedule upward? ‘Aa cumently small stock of durable goods in the session of consumers |B} the expectation of a future decline in the consumer ‘price index C.a currently low level of household debt D. the expectation of future shortages of essential ‘consumer goods 22. Which of the following will uot cause the consumption schedule to shift? ‘A. a shanp increase in the amount of wealth held by households esa commerinenes C. the expectation of recession D. a growing expectation that consumer durables will be in short supply 23. Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of ‘Aan inerease in disposable income B. an increase in household wealth. ‘an increase in personal taxes. . the expectation of a recession. Ss, Saving Disposable Income 24. Suppose the economy's saving schedule shifts from $1 to $2, as shown in the given diagram. We can say that its A. MPC has increased, MPS haas increased. C. APS has increased at all levels of disposable income. D. APS has decreased at all levels of disposable income. c, Consumption 0 Disposable Income 25, Suppose an economy's coustumption schedule shifts from C1 to C2, as shown in the diagram. We can say that its A. MPC has increased, but its APC at each income level is unchanged. B. APC at each income level is increased, but its MPC is unchanged. CG MPC aud APC at each income level have both increased D. MPC and APC at each income level have both decreased 120 2 2100 ¢ Consumption (Bill 2 8 45° 0 20 40 60 80 100 120 Income (Billions)26. The given figure suggests that: A. consumption would be $60 billion even if income were zero. . saving is zero at the $120 billion income level. ©) ss income increases, consumption decreases as a percentage of income. D. as income increases, consumption decreases absolutely. 27. Refer to the given figure. Ifthe relevant saving schedule were constructed. saving would be mins $20 billion atthe zero level of income. B. aggregate saving would be $60 at the $60 billion level of income. C. ts slope would be 1/2. D. it would slope downward and to the right. 2 8 Saving (S) 2 Ss on e ° 100 150 200 Disposable Income (Y,) -20 | 28. Refer to the given diagram. The marginal propensity to consume is A. 02. @)o C0 D. 0.3. 29. The equation for the given saving schedule is: 20+ 0.88. 30. Refer to the diagram, The average propensity to consume ‘A. is greater than 1 at all levels of disposable income ove $100. s ateater than | at all levels of disposable income below $100. is equal to the average propensity to save. D. cannot be determined from the information given. 31. Other things equal, a decrease in the real interest rate will Q\stift the investment demand curve to the right. B. shift the investment demand curve to the left. C. move the economy upward along its existing investment demand curve. D. move the economy downward along its existing investment demand curve. 32. The investment demand curve suggests that A. changes in the real interest rate will not affect the amount invested. there is an inverse relationship between the real Tate of interest and the level of investment spending. C. an increase in business taxes will tend to stimulate investment spending. D. there is a direct relationship between the real rate of interest and the level of investment spending 33. If business taxes are reduced and the real interest Tate increases, coustumption and saving will necessarily inrease. (B) the level of investment spending might either increase or decrease. . the level of investment spending will necessarily increase, D. the level of investment spending will necessarily decrease. 34. The investment demand curve will shift to the right as a tesult of A. an increase in the excess production capacity available in industry, B. an increase in business taxes, (Cechnological progress. D. ain inerease in the acquisition and maintenance cost of capital goods. ®r the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is A.18 percent, ? Ooms!436, Ifthe real interest rate in the economy is i and the expected rate of retum on additional investment ist, then, other things equal, © investment will take place until i and r are equal B. investment will take place until r exceeds i by the ‘greatest amount. Cr will rise as more investment is undertaken D. i will fall as more investment is undertaken \ . 1D, ID, 0 Investment Real Interest Rate 37, Refer to the diagram, Which of the following would shift the investment demand curve from IDI toD2? A.a lower interest rate B. lower expected rate of return on investment C.a higher interest rate Obigher expected rates of return on investment 38. Refer to the diagram. Which of the following ‘would increase investment while leaving an existing {nwvestment demand curve, say, 1D2, in place? @ a lower interest rate B. a higher interest rate C. lower expected retums on investment D. higher expected retums on investment 39. If thete is a decrease in disposable income in an economy, then A. both the APC and the APS rise. the APC rises and the APS falls. "the APC falls and the APS rises. ‘D. both the APC and the APS fall. 40. If disposable income is $900 billion when the average propensity to consume is 09, it can be concluded that A. the marginal propensity to consume is also 0.9. B. the marginal propensity to save is 0.1 C. consumption is $900 billion. saving is $90 billion. 41. Assume that an increase in a households disposable income from $40,000 to $48,000 leads to an increase in consumption fiom $35,000. to 41,000, then the slope of the consumption schedule is 0.75 average propensity to consume is 0.75, CC. marginal propensity to save is 0.2 D. marginal propensity to consume is 0.6. 42, Ifthe consumption schedule is a straight line, it can be concluded that the A. APC is necessarily constant. MPC is zero. ‘MPC is constant at various levels of income. |. APC is equal to the MPC. 43. If disposable income decreases from $1.80 to $1,500 and MPC = 0.75, then saving will Avinerease by $225. B. decrease by $2 C.jnerease by $75. (pecrease by $75, 44, In an economy, for every $10 million increase in disposable income, saving increases by $2 million. Trean be concluded that the |A, slope of the saving schedule is 2. (B)stope of the consumption schedule is 0.8 © marginal propensity to consume is 0.2. D. average propensity to save is 0.2. Disposable Income | Consumption $300 3310 350 340 400 370 450 400 300 430 45, The table shows a consumption schedule. At the $300 level of disposable income, A.the marginal propensity to save is 0.80.B. the average propensity to consnme is 0.60. C the average propensity to save is 0.30. there is a dissaving of S10. 46, An increase in household wealth that creates a wealth effect would shift the A. coustmption schedule and the saving schedule upward. B. consumption schedule and the saving schedule lownvward, o constimption schednle upward and the saving seliedule downward. D.. consumption schedule downward and the saving schedule upward. 47. Which of the following would shift the saving schedule upward? Q a decrease in wealth a decrease in real interest rates C. consumer expectations of rising prices of products D. increased optimism about future incomes: 48. The aggregate demand curve A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. is downsloping because production costs decline as real output increases. C. shows the amount of expenditures requited to induce the production of each possible level of real output, shows the amount of real output that will be purchased at each possible price level 49. The interest-rate effect suggests that ‘A. a decrease in the supply of money will increase interest rates and reduce _interest-sensitive consumption and investment spending. B. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. Jan increase in the price level will increase the ‘demand for money, increase interest rates, and decrease consumption and investment spending. D. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending. 50. The foreign purchases effect suggests that an increase in the US. price level relative to other counties will ‘A. increase the amount of US. real output purchased increase U.S. imports and decrease U.S. exports. C. inerease both U.S. imports and US. exports D. decrease both US. imports and U.S. exports 51. The real-balances, interestrate, and foreign purchases effects all help explain F wy ite aggregate demand eurve is downsloping B. why the aggregate supply curve is upsloping C. shifts in the aggregate demand curve. D. shifts in the agaregate supply curve. Which one of the following would not shift the aggregate demand curve? Ja change in the price level B. depreciation of the intemational value of the dollar C. a decline in the interest rate at each possible price level D. aniincrease in personal income tax rates 53. Which of the following would most likely shift he aggregate demand enrve tothe right? ‘an increase in stock prices that increases consumer wealth B. increased fear that a recession will cause workers to lose their jobs C. an increase in personal income tax rates D. a reduction in household borrowing because of tighter lending practices 54. The ageregate supply curve A. is explained by the interest rate, real-balances, and foreign purchases effects B. gets steeper asthe economy moves from the top of the curve to the bottom of the curve. hows the various amounts of real output that isinesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls. 55. The aggregate supply curve (short rim) is upsloping because ‘A. wages and other resource prices match changes in the price level.tue price level is flexible upward but inflexible dovwnrard, C. persnit production costs rise as the economy roves toward and beyond its fall-employment real ‘output. D. wages and other resource prices are flexible upward but inflexible downvvatd. $6. Other things equal, an improvement in productivity will A, shift the aggregate demand curve to the left. B. shift the aggregate supply curve to the left. © shift the aggregate supply curve to the right. D. increase the price level. 57. The determinants of aggregate supply A. are constamption, investment, goverament, and net export spending. B. explain why real domestic output and the price level are directly related. . explain the three distinct ranges of the aggregate supply curve. @ include resource prices and resource productivity. 58 Which of the following would not shift the aggregate supply curve? A. anincrease in labor productivity B. decline in the price of imported oil C. adecline in business taxes Oa increase in the price level 59, Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal the aggregate A.) cemand curve will shift leftward Gin curve will shift rightward C. supply curve will shift leftward. D. expenditures curve will shift downward. 60. Other things equal, appreciation of the dollar A. inereases aggregate clemand in the United States ‘and may inetease aggregate supply by redueing the prices of imported resouroes. B. increases aggregate demand in the United States ‘and may dectease aggregate supply by reducing the prices of imported resources. decreases aggregate demand in the United States ‘and may increase aggregate supply by reducing the prices of imported resouroes. D. decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources. 61. Other things equal, a reduction in personal and ‘business taxes can be expected to A. increase aggregate demand and decrease aggregate supply. increase both aggregate demand and aggregate supply. C. decrease both aggregate demand and aggregate supply. D. decrease aggregate demand and increase aggregate supply, 62. The economy's long-run slopes upward and to the ate supply curve C is horizontal D. slopes downward and to the tight. Price Price AS, Price As, AS, As, 8) P, Py aw Pi Ande {ADS MO fo, | “ad Me 9a, 9 QQ 0a @ Quantity Quantity Quantity (A) (8) () 63, Refer to the diagrams, in which AD] and AS] are the "before" curves and AD2 and AS? are the "after" curves, A recession is depicted by AA BB. Cc. |A and B. 64. Refer to the diagrams, in which AD] and AS] are the "before" curves and AD? and AS? are the "after" curves, Growth, fll-employment, and price stability are depicted by AA B.B. Oc D. Bandc.65. Refer to the diagrams, in which AD] and ASL are the "before" curves and AD? and AS? are the "after" curves. Other things equal, an inerease in investment spending is depicted by AA . B. C D. BandC 66. Refer to the diagrams, in which ADI and AS are the "before" curves and AD? and AS? are the “after” curves, Other things equal, @ decline in productivity is depicted by é A B. Cc. D. Band, 67. Refer to the diagrams, in which AD] and AS]. are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of ‘a price-level increase is depicted by the A shift of the AD curve in A (B move from point a to point b in B. - Shift of the AS curve in B. D. move from point a to point c in C. 68. Refer to the diagrams, in which AD] and ASI are the "before" curves and AD? and AS? are the "after" curves. Other things equal, a decrease in resource prices is depicted by AA D. Band. 69. A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will A. increase real output by more than the price level. B. increase the price level by more than real output. reduce real output by more than the price level. reduce the price level by more than real output. 70. If personal taxes were decreased and resource productivity increased simultaneously, the librium g output would necessarily rise. atput would necessarily fall. C. price level would necessarily fal. D. price level would necessarily riseShort-Answer, Essays, and Problems LFill inthe table below. Deseribe your result. Disposable Income Consumption Saving $200 $210 s_ $220 se $230 $260 s__ $280 s__ $300 $260 $0 $10 $20 $30 2. Complete the following table assuming that (a) MPS = 1/5, (b) there is uo goverument and all saving is personal saving. Level of output and income Consumption Saving $250 275 300 325 350 375 400 $260 8, 3.Suppose a family's annual disposable income is $8000 of which it saves $2000. (a) Whatis their APC? (b) Iftheir income rises to $10,000 and they plan to save $2800, what are their MPS and MPC? (c) Did the family's APC rise or fall with their increase in income? 4.Complete the accompanying table. Level of output and income (GDP = Dl) $100 125 150 175 200 226 250 275 300 Consumption Saving $ $5 0 5 10 15 20 25 0 35 APC APS MPC MPS (a) What is the break-even level of income? How is it possible for houselolds to dissave at very low income levels? (0) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain hhow the MPC and MPS can be constant at various levels of income, 105.Complete the accompanying table. Level of output and income (GDP = Dl) Consumption Saving APC APS MPC MPS ‘$480 __ 8 a 50 _ 0 560 _ _ 600 _ 6 640 _ Mo 680 __ 2 720 __ Mo 760 _ Bo 800 __ 56 __ (@) Show the consumption and saving schedules graphically (0) Locate the break-even level of incoue. How is it possible for households to dissave at very low income levels? (©) If the proportion of total income consumed decreases and the proportion saved increases as income rises, explain both verbally and graphically how the MPC and MPS can be constant at various levels of income. 6.Other things being constant, what will be the effect of each ofthe following on disposable income (or GDP)? (@) An increase in the amount of liquid assets consumers are holding (0) A shapp rise in stock prices (©) Arapid upsurge in te rate of technological advance (@) A shanp increase inthe interest rate 7Other things being constant, what will be the effect of each of the following on consumption and saving schedules? (a) Credit card companies increase the interest-free periods on their cards to compete for customers. (b) Concem grows over rising prices. (6) A weakening of the housing market lowers home values. (4) Real interest rates fal (©) Congress officially approves the President's plan for tax cuts. 8, Use the graphs below to answer the following questions: (a) What types of schedules do graphs A and B represent?” (0) Ifin graph A line 42 shits to 43 becanse households consume more and this change is not due to changing taxes, then in graph B, what would happen to line B.? (©) If'in graph B, line B> shifts to B, because households save less, then in graph A. what will happen to line 4;? (2) In graph A, what has caused the movement frou point A to point B on line 4? (©) If there is a fump-sumu tax increase causing line 42 to shift to 4, then in graph B, what will happen to B.? | SF Dipossbla income olions of dlls) ‘posable income bons of dlls) a ® u9.Use the following data to answer the questions. Expected rate of return Cumulative amount of investment (billions) 11% $55 10 15 8 90 105 3 150 1 190 (a) Explain why this table is essentially an investment demand schedule. (b) Ifthe interest rate was 8%, how much investment would be undertaken? (©) Why is there an inverse relationship between the rate of interest and the amount of investment? 10, How will the following situations affect the investment demand curve? (a) Anew type of engine is developed that is more fuel efficient. (b) To lessen the fiscal deficit, Congress increases comporate taxes. (©) Unplanned inventories rise to new highs. (@) A firm decides to increase its current inventory levels. 1, Describe the likely effect of the following events would on the aggregate demand (AD) curve. (a) A boost in research aud development by computer companies produces more powerfil and efficient computers and equipment. (b) Income falls in several countries that trade heavily with the U.S. (6) Prices fll across several industries. (@) After a budget surplus, Cougress moves to cut persoual income taxes. 12, Describe the change in aggregate supply that should result from each of the following changes in determinants Assume that nothing els is changing besides the idemified change. (Use “Decrease” or “Increase.”) (a) A rise in the average price of inputs: (b) An increase in worker productivity: (c) Government antipoltarion regulations become stricter, (d) A new subsidy program is enacted for uew business investuent in productive equipment; (e) Energy prices decline 13, Suppose that a hypothetical economy has the following relationship beveen its real domestic output and the input ‘quantities necessary for producing that level of output, Input quantity Real domestic output 400 800 300 600 100 200 (a) What is the level of productivity in this economy? (b) What is the unit cost of production ifthe price of each input is $2.007 (©) If the input price decreases from §2 to $1.50, what is the new per unit cost of production? In what direction ‘would the aggregate supply curve move? What effect would this shift have on the price level and the level of real ‘domestic output ifthe economy is initially operating inthe intermediate range? (@) Suppose that instead ofthe input price decreasing. the productivity ad increased by 25 pereent, What will be the new nit cost of production? In what direction would the aggregate supply curve move? What effect would this shift have on the equilibrium price and output level if the economy?4, Suppose the agaregate demand aud supply schedules fora hypothetical ecouomy are as shown below. Amount of real domestic output Price level Amount of real domestic demanded, billions _(price index) _output supplied, billions S200 300 $800 400 250 800 600 200 600 800 150 400 1000 100 200 (@) Use these sets of data to graph the aggregate demand and supply curves on the below graph. (b) What will be the equilibrium price and output level in this hypothetical economy? Is it also the full-employment level of output? Explain. (©) Why won't the 150 index be the equilibrium price level? Why won't the 250 index be the equilibrium price level? (@ Suppose demand increases by $400 billion at each price level. What will be the new equilibrium price and output levels? (©) What factors might cause a change in aggregate demand? 15, Describe each ofthe following outcomes in terms of shifts in aggregate demand or ageregate supply curves, (@) A recession deepens while the rate of inflation increases (b) The price level rises sharply while ral output and employment increase (©) The price level falls, but the unemployment rate rises (@ Real ontput rises, unemployment rte falls, and the price level rises, 16, Evaluate the effect of the following on the AD curve, AS curve, equilibrium price level and equilibrium ouput. (@) The U.S. imposes tari on foreign goods to promote domestic industry. In retaliation, foreign countries impose tarifs on U.S. goods, (b) Congress decides to decrease persoual income taxes, and fo compensate for the lost revenue they decrease business subsidies. (© A ecology boom improves technology across industries, improving their productivity (@ US. oil companies discover new large oil reserves in the U.S. The international price of ol falls, 17, Examine the effect the following events would have on either aggregate supply or aggregate demand. (@) The minimum wage increases and all employers must pay their workers at least $15.00 an hour. (b) The personal income taxes increase in order to pay down government debt. (©) The average consumer is becoming wealthier during a period of expansion during the business eyele, 18, How would the following developments affect ageregate demand or agaregate supply? (@) A reduction in persoual income tases. (b) More funding for research and development in new technologies (©) An increase in business subsidies. B19. In the table below are aggregate demand and supply schedules ‘Real domestic outp Pricelevel Demanded Supplied (wy QO 8 & 250 1400 19002000 225 1300 2000-2000 200 1600 21001900 175 1700 22001700 150 1800 2300 1400 125 1900 2400 1000 100 2000 2500 500 (a) On the graph below. plot the aggregate demand curve shown in columns (1) and (2) in the above table, and label this curve AD. (b) On the graph below. plot the aggregate supply curve shown in columns (1) and (4) in the above table; and label this curve AS. (©) Whatis te level of equilibrium real domestic omput and price level? (4) Now assume that aggregate demand changes. Use columns (1) and (3) to plot the new ageregate demand curve: and label this curve AD». (e) What is the new level of equilibrium real domestic ouput and price level? ir