Suppose that the equation for the aggregate demand is Y = 7,000 + 2,400/P. In this real business cycle model, the equation for natural real GDP is YN = 9,000 + technology shock. The technology shocks for periods 1€“6 are given below.

(a) Calculate the points on the aggregate demand curve when the price level equals 0.75, 0.80, 1.00, 1.20, 1.25, and 1.50.
(b) Compute the price level and real GDP in periods 1€“6. Describe the cyclical behavior of real GDP and the price level in this real business cycle model.

Transcribed Image Text:

Period Technology shock -40080 0 1,000 400 0