7. In the global economy, when the price level is 100, aggregate planned expenditure would be $10 trillion if real GDP were zero; when the price level is 90, aggregate planned expenditure would be $11 trillion if real GDP were zero; and when the price level is 110, aggregate planned expenditure would be $9 trillion if real GDP were zero. For each $1 increase in real GDP, aggregate planned expenditure increases by 75cents, and this relationship between expenditure plans and real GDP is the same at every price level.
a. Calculate aggregate planned expenditure when the price level is 100 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
b. Calculate aggregate planned expenditure when the price level is 110 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
c. Calculate aggregate planned expenditure when the price level is 90 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
d. Calculate equilibrium expenditure at price levels of 90, 100, and 110.
e. Make graphs of the AE curves at price levels of 90, 100, and 110 and the AD curve.
8. In exercise 7, global investment increases by $1 trillion.
a. Calculate aggregate planned expenditure when the price level is 100 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
b. Calculate aggregate planned expenditure when the price level is 110 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
c. Calculate aggregate planned expenditure when the price level is 90 at real GDP levels of $35 trillion, $40 trillion, and $45 trillion.
d. Calculate equilibrium expenditure at price levels of 90, 100, and 110.
e. Make graphs of the new AE curve at price levels of 90, 100, and 110 and the AD curve.
9. Compare the AD curve of exercise 7 with that of exercise 8.
a. Does the AD curve shift leftward or rightward? Explain the direction of the shift.
b. Does the AD curve shift by the same $1 trillion increase in investment, by more than that amount, or by less than that amount? Explain the magnitude of the shift.
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