Assume the price level has risen to 110 and remains constant. Now suppose the economy finds a new equilibrium and that real GDP is at $15.5 trillion. Draw a new aggregate expenditure curve and a new aggregate demand curve to reflect the increase in spending. Indicate the new points of equilibrium with the letter D.
What will be an ideal response?
Students should draw a new AE curve midway between the curves AE (P = 100) and AE (P = 110). The curve should have the same slope as the other lines. Point D should be labeled midway between points C and A to line up with 15.5 in real GDP. The new AD curve should be to the right of the existing AD curve. It should have the same slope as the existing curve and pass through the intersection of 110 on the price level axis and 15.5 on the real GDP axis. That intersection should be labeled point D.
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a. True b. False Indicate whether the statement is true or false