5. An economy’s AD (Aggregate Demand) function is Y = 1000 – 2P and AS (Aggregate Supply) function is P = 20 + 0.1Y. Show these two lines in a graph. Label graphs. Find the equilibrium price level (P) and GDP (Y) and show them on the graph.

6. Use the AS and AD curves to illustrate your points and discuss the effects of the following events on the price level and on the equilibrium GDP (Y) in the short run:

a) The labor unions negotiate with the government and succeed in increasing the minimum wage.

b) Consumer confidence drops due to an increase in gas-price.

Answer rating: 100% (QA)

The Aggregate Demand AD function Y 1000 2P and Aggregate Supply AS function P 20 01Y can be plotted ... View the full answer