The economy of Country X is in equilibrium at full employment. (a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) The current equilibrium price level, labeled PL1 (ii) The current equilibrium real output, labeled Y1 (b) Assume that household income increases as a result of recent economic prosperity in Country X. On your graph in part (a), show the effect of the increase in household income on real output and the price level. (c) What will be the effect of the change identified in part (b) on unemployment in Country X? (d) Will the change in real output shown in part (b) be smaller or larger in the presence of automatic stabilizers? Explain.

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05-10-2022
Advanced Placement (AP)

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The economy of Country X is in equilibrium at full employment. (a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) The current equilibrium price level, labeled PL1 (ii) The current equilibrium real output, labeled Y1 (b) Assume that household income increases as a result of recent economic prosperity in Country X. On your graph in part (a), show the effect of the increase in household income on real output and the price level. (c) What will be the effect of the change identified in part (b) on unemployment in Country X? (d) Will the change in real output shown in part (b) be smaller or larger in the presence of automatic stabilizers? Explain.

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