You need the right answer and the whole process Question 1: Price Changes
Suppose that we are in a national economy given by the following AEF Curve:
AEF = 1,000 + 0.75Y
Given this information, answer the following questions:
Suppose that for every $1 increase in price, autonomous consumption decreases by 3 units and desired exports decreases by another 1 unit. Assume that this holds true for any given change in prices. Suppose that the AEF is the AEF associated with a price of $200.
a) Suppose therefore that price increase by $50, what would be the increase in Y* in this example?
b) Use both of these points to draw out the AD curve. What is the functional form for Aggregate Demand?
c) How does the value of the simple multiplier affect the AD curve? You've trained for this (ECO 101).
Now suppose that the economy has an aggregate supply curve given by: