Answer to Question #239838 in Macroeconomics for nuya

Question

Question 5 Price level (GDP deflator, 2005 = 100) Quantity of real GDP demanded (trillions of 2005 dollars) Quantity of real GDP supplied (trillions of 2005 dollars) 115 8.8 12.0 110 9.4 11.0 105 10.0 10.0 100 10.6 9.0 95 11.2 8.0 90 11.8 7.0 Based on the table above, a) What is the equilibrium price level and real GDP? (4 marks) b) If potential GDP is $11.0 trillion, what does that imply about the economy's level of employment? (8 marks) c) If potential GDP is $9.0 trillion, what does that imply about the economy's level of employment? (8 marks)

Answer 1

Solution:

a.). The equilibrium price level = 105

The equilibrium real GDP is = $10.0 trillion

The equilibrium point is where the quantity of real GDP demanded is equal to quantity of real GDP supplied.

 

b.). If the potential GDP is $11.0 trillion, then the economy is at equilibrium that is below full-employment level.

 

c.). If the potential GDP is $9.0 trillion, then the economy is at equilibrium that is above full-employment level.