Explain why the AS curve has the slope you calculated as a result of the “sticky price theory”.

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Subject: Economics    / General Economics
Quantitative Literacy Assignment
Aggregate Supply & Aggregate Demand ECO 2013
Consider the table below for the aggregate supply (AS), and aggregate demand
(AD), for goods and services in the United States. Price Level – P
(Y Axis) Real GDP
Demanded in
billions (AD) Real GDP Supplied
in billions (AS) 50
60
70
80
90
100
110
120
130
140
150
160
170 16,300
16,200
16,100
16,000
15,900
15,800
15,700
15,600
15,500
15,400
15,300
15,200
15,100 15,100
15,200
15,300
15,400
15,500
15,600
15,700
15,800
15,900
16,000
16,100
16,200
16,300 1. On the grid below, create a graph depicting the U.S. economy using the table
above, and plot the AD and the AS. (Use EXCEL to plot the graph on a separate
sheet if possible, but not required. Use titles on the graph, axes, and curves; Use
X axis for Real GDP and Y axis for price level.). 2. a. Calculate the slope of the AD curve using data in the table/graph.
b. Calculate the slope of the AS curve using data in the table/graph.
c. Using 3-4 well-written sentences and numerical examples in the table
for the each of the following two questions.
(i) Explain why the AD curve has the slope you calculated as a result
of the “wealth effect”.
(ii) Explain why the AS curve has the slope you calculated as a result
of the “sticky price theory”. 3. Using the graph created from the data in the table, determine the short-run
equilibrium price level and level of output. Explain using 2-3 well written sentences how this equilibrium point is determined and include the numerical
values. 4. From your graph, explain using 2-3 sentences how an increase in real GDP
could occur in the economy and give a specific written real world scenario or
example. Include the resulting effect on the price level (P) and give the correct
terminology that corresponds to this type of price level change. 5. On your existing graph, draw what would happen if: 1) crude oil prices fell
slightly, and 2) stock and housing prices declined sharply. Explain the result
using 2-3 sentences and include numerical examples from your new graphical
outcome. Compare the new position of the aggregate supply and demand
curves, and the new short-run equilibrium compared to the old one.

 
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