Refer to the table below. If this nation's aggregate supply schedule graphs as a vertical line at the $25 billion level of real GDP, its price level will be: The following table is for a particular country in which C is consumption expenditures, I_g is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. A) 128. B) 125. C) 122. D) 119.

Question

Quizplus · Accepted Answer

If the aggregate supply schedule is a vertical line at the $25 billion level of real GDP, it means that the economy has reached its full employment level of output and cannot produce more regardless of the price level. Therefore, the price level will be determined solely by the aggregate demand curve, which intersects the vertical aggregate supply curve at the real GDP level of $25 billion. Looking at the table, the aggregate demand at $25 billion real GDP is $125 billion ($80 + $10 + $15 + $20 - $10). Hence, the price level will be $125 billion divided by $25 billion, which equals 5. Therefore, the correct answer is B.

Refer to the Table Below