Answer to Question #299225 in Macroeconomics for topaztee

Question

Suppose the price level in a particular economy equals 1.3 and that the quantity of real GDP demanded at that price level is $1,200. An increase of 0.1 point in the price level reduces the quantity of real GDP demanded by $220, and a reduction of 0.1 point would produce an increase in the quantity of real GDP demanded of $220. Draw the aggregate demand curve and show the price level and quantity of real GDP demanded at three points

Answer 1

 Draw the aggregate demand curve and show the price level and quantity of real GDP demanded at three points

Since we see, the economy's price level is 1.3, and the quantity of real GDP needed at this price level is $1200. With a 0.1-point rise in the price level, the economy's price level rises to 1.4(1.3 + 0.1), and the amount of real GDP needed rises to $980 ($1200 - $220). When the price level in the economy is reduced by 0.1 points, the price level equals 1.2(1.3-0.1), and the amount of real GDP needed in the economy equals $1420 ($1200 + $220).