Describe the various terms in the ad curve

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Reference no: EM1374344

This is a challenging question and involves algebraically solving system of two equations given by AD abd AS curves. The equations for the curves are given through the following:
AD: YAD = 710-30P + 5G
AS: YAS = 10+5P-2Poil
where Y is real GDP, P is the price level, G is the level of government purchases and Poil is the world price of oil.

[A] Describe the various terms in the AD curve. What is the value of the simple multiplier? (Suggestion: the simple multiplier is the change in equilibrium real GDP when some autonomous component of expenditure, like G, changes by $1 if the price level is held constant.)
[B] Describe the various terms in the AS curve. Describe why the price of oil enters negatively.
[C] Solve for the equilibrium value of real GDP and the price level.
[D] Using your solution to part [C], what is the effect of change in G on equilibrium Y and P?
[E] Using your solution to part [C], what is the effect of a change in Poil on equilibrium Y and P? hide problem

Reference no: EM1374344

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