$$\begin{array} { c c c }
\begin{array} { c }
\text { Price level } \
\text { (GDP deflator) }
\end{array} & \begin{array} { c }
\text { Real GDP demanded } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { c }
\text { Real GDP supplied } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} \
\hline 80 & 10 & 2 \
90 & 9 & 4 \
100 & 8 & 6 \
110 & 7 & 7 \
120 & 6 & 8 \
130 & 4 & 9 \
\hline
\end{array}$$
The table gives the aggregate demand and aggregate supply schedules for a nation.
-If the price level is 120 then the aggregate quantity demanded is ________ than the aggregate quantity supplied and the price level ________.
A)greater; rises
B)greater; falls
C)less; rises
D)less; falls
E)less; might fall, rise or not change depending on whether real GDP is more than, less than, or equal to potential GDP.

Question

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Price level } \
\text { (GDP deflator) }
\end{array} & \begin{array} { c } 
\text { Real GDP demanded } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Real GDP supplied } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} \
\hline 80 & 10 & 2 \
90 & 9 & 4 \
100 & 8 & 6 \
110 & 7 & 7 \
120 & 6 & 8 \
130 & 4 & 9 \
\hline
\end{array}$$ 
The table gives the aggregate demand and aggregate supply schedules for a nation.
-If the price level is 120 then the aggregate quantity demanded is ________ than the aggregate quantity supplied and the price level ________.
A)greater; rises
B)greater; falls
C)less; rises
D)less; falls
E)less; might fall, rise or not change depending on whether real GDP is more than, less than, or equal to potential GDP.

Quizplus · Accepted Answer

At a price level of 120, aggregate quantity demanded is less than aggregate quantity supplied, creating an excess supply or surplus of goods and services. Producers will respond to the excess supply by decreasing output, which will put downward pressure on prices until the market reaches equilibrium. Therefore, the price level falls. Choice D correctly identifies this outcome.

The Table Gives the Aggregate Demand and Aggregate Supply Schedules