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Draw the ad and as functions

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Reference no: EM132795434

Suppose research has uncovered the following aggregate demand and supply functions for an economy:

AD: P = 70 - 0.05Y

AS: P = 10 + 0.05Y

a) Draw the AD and AS functions to illustrate the short-run equilibrium real GDP and price.

b) What are the short-run equilibrium values for real GDP and the price level from the graph above? Let us also assume that this short run equilibrium is also the long run equilibrium, that is, Y=YP.

c) Suppose a fall in demand for new houses reduced the investment component aggregate expenditure, and reduced AD at each price level by 600. Draw the new AD curve in the graph above.

Reference no: EM132795434

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