Macroeconomics: Chapter 5/Extra Credit exercise Section: Student Name:

You need to show your work, i.e. graphs and calculations. You can generate graphs in Excel or in
paintbrush or draw a graph and take a picture. This extra credit homework is worth 15 points
QUESTION 1
Aggregate Demand (AD) is drawn with price level, average price for everything in the economy relative
to the base year price, (not the dollar price) on the vertical axis and Real GDP demanded on the
horizontal axis. Use the numbers from the following table and calculate the Real GDP Demanded using
expenditure approach of GDP, and plot all the points on the Aggregate Demand. Connect all the points
to draw the aggregate demand. [Review Chapter 5 powerpoints, textbook and internet source to find
what numbers have to be added to get each of the points in the Aggregate Demand curve.]

Real GDP Demanded

Price (AD): Real GDP Supplied:
Level C I G X M C+I+G+ (X-M) Aggregate Supply (AS)
110 $400 $185 $150 $55 $50 $740 $680
115 390 180 150 50 50 $720 720
120 380 175 150 45 50 $700 750
125 370 170 150 40 50 $680 780
130 360 165 150 35 50 $660 810

135 $850

130
$800
125

120 $750
Price Level

115 $700
Real GDP (AS)
110
$650
105

100 $600
$700 $720 $740 $760 $780 $800
Real GPD

1
 Macroeconomics: Chapter 5/Extra Credit exercise Section: Student Name:

You need to show your work, i.e. graphs and calculations. You can generate graphs in Excel or in
paintbrush or draw a graph and take a picture. This extra credit homework is worth 15 points

Next, draw the Aggregate Supply curve using price level and real GDP supplied (AS) number pairs. At
what price level and Real GDP will the economy reaches at equilibrium?

112, $732.

If there is an increase in Government Purchase (G) (for eg. Infrastructure spending) by $50, how is that
going to affect the overall economy interms of equilirium Real GDP and Price Level?
The increased government spending may create a multiplier effect. If the government spending causes
the unemployed to gain jobs then they will have more income to spend leading to a further increase in
aggregate demand.

Show it by making changes in following table, and draw a new graph or make changes in the graph in
previous page.

Real GDP Demanded

Price (AD): Real GDP Supplied:
Level C I G’ X M C+I+G+ (X-M) Aggregate Supply (AS)
110 $400 $185 $200 $55 $50 $790 $680
115 390 180 $200 50 50 $770 720
120 380 175 $200 45 50 $750 750
125 370 170 $200 40 50 $730 780
130 360 165 $200 35 50 $710 810

QUESTION 2

The table below shows the price indexes and the nominal gross domestic product (GDP) for an economy
from 2001 to 2004. What happened to Real GDP between 2001 and 2002, increased, or decreased? by
what amount? You need to show your work. It increased by sightly less than 10 million (around 9.8
million).
{[Need to use formula: GDP Deflator Price Index = [Nominal GDP/Real GDP] *100.
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Macroeconomics: Chapter 5/Extra Credit exercise Section: Student Name:

You need to show your work, i.e. graphs and calculations. You can generate graphs in Excel or in
paintbrush or draw a graph and take a picture. This extra credit homework is worth 15 points
Hint: for a base or reference year, Nominal GDP is equal to Real GDP }
Table 6.4

Year Price Index Nominal GDP

2001 (base year) 100 $95billion
2002 105 $110billion
2003 110 $120billion
2004 120 $125billion

3
Macroeconomics: Chapter 5/Extra Credit exercise Section: Student Name:

You need to show your work, i.e. graphs and calculations. You can generate graphs in Excel or in
paintbrush or draw a graph and take a picture. This extra credit homework is worth 15 points
QUESTION 3

2009 (base yr) 2010 2011

P Q P Q P Q

Good A $30 900 $31 1,000 $36 1050

Good B $100 192 $102 200 $100 205

Use the above data to solve these problems, show your work:

[Example you find the powerpoints are going to be very helpful.

A. Compute nominal GDP in 2009.

$46,200 Nominal GDP

B. Compute real GDP in 2010.

$50,000 Real GDP

C. Compute the GDP deflator Prince Index in 2011.

112 3/26 or 112.1