Use the figure below to answer the following questions.

Figure 28.2.3
-Refer to Figure 28.2.3. Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS₀ curve and the AD₀ curve. If the aggregate demand curve is expected to remain at AD₀ but shifts to AD₁, the new equilibrium real GDP is ________ and the new equilibrium price level is ________.
A)$380 billion; 125
B)$500 billion; 150
C)$500 billion; 100
D)$620 billion; 125
E)$500 billion; 125

Question

Use the figure below to answer the following questions.
  
Figure 28.2.3
-Refer to Figure 28.2.3. Assume that the figure illustrates an economy initially in equilibrium at the intersection of the SAS₀ curve and the AD₀ curve. If the aggregate demand curve is expected to remain at AD₀ but shifts to AD₁, the new equilibrium real GDP is ________ and the new equilibrium price level is ________.
A)$380 billion; 125 
B)$500 billion; 150 
C)$500 billion; 100 
D)$620 billion; 125 
E)$500 billion; 125

Quizplus · Accepted Answer

When the AD curve shifts from AD₀ to AD₁, there is an increase in aggregate demand. As a result, the equilibrium GDP will increase, and the price level will rise. The new equilibrium point will be where the AD₁ curve intersects with the SAS curve. From the graph we can see that this point is at around $620 billion for GDP and a price level of 125. Therefore, the answer is D.

Use the Figure Below to Answer the Following Questions