You are given the following equations for the aggregate demand (AD) and short-run aggregate supply (SAS) curves:
AD: Y = 1.25Aʹp + 2.5Ms/P
SAS: Y = 11,250 - 20W + 1,000P
where Y is real GDP, Aʹp is the amount of autonomous planned spending that is independent of the interest rate, Ms is the nominal money supply, P is the price level, and W is the nominal wage rate. Assume that Aʹp equals 5,000, Ms equals 2,000, W equals 50, and natural real GDP, YN, equals 11,250.
(a) Use the values for the amounts of autonomous planned spending that is independent of the interest rate and the nominal money supply to derive the equation for the aggregate demand curve. Compute the amount of aggregate demand when the price level equals 2.0, 1.25, 1.0, 0.8, and 0.5. Graph the aggregate demand curve.
(b) Derive the equation for the short-run aggregate supply curve, given that the nominal wage rate equals 50. Compute the amount of short-run aggregate supply when the price level equals 2.0, 1.25, 1.0, 0.8, and 0.5. Graph the short-run aggregate supply curve.
(c) Given your answers to parts a and b, explain what the short-run and long-run equilibrium levels of real GDP and the price level are.
(d) Given your answers to part c, explain what the equilibrium real wage rate is.
(e) Suppose that autonomous planned spending increases by 800 billion so that Aʹp = 5,800. Explain if this increase is the result of increased willingness of financial market firms to lend to consumers and business firms or a collapse in the housing market, which reduces household wealth and housing construction. Derive the new equation for the aggregate demand curve. Compute the new amount of aggregate demand when the price level equals 2.0, 1.25, 1.0, 0.8, and 0.5. Graph the new aggregate demand curve.
(f) Given your graphs in parts b and e, explain what the new short-run equilibrium values of real GDP and the price level approximately are.
(g) Explain what the new long-run equilibrium real GDP and equilibrium price level are, given the increase in aggregate demand. Explain how the short-run aggregate supply curve shifts as the economy adjusts to the new long-run equilibrium. Compute the new nominal wage rate at the new long-run equilibrium price level and derive the new short-run aggregate supply curve, given the new nominal wage rate. 

(h) Suppose policymakers want to prevent a rise in the price level that would otherwise result from the increase in planned spending. Explain by how much fiscal policymaker would have to reduce planned spending in order to prevent a rise in the price level. Explain by how much monetary policymakers would have to decrease the nominal money supply in order to prevent a rise in the price level.