Calculating real gdp and price level

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Reference no: EM1311620

Suppose an economy has the following aggreagate demand curve

Y=3401+ 2.888 M/P and a price adjustment schedule

II = 1.2[(Yt- i - Y*)/Y*]

Where Y* is potential real output= 6000, M= money suppy=900

(a)Plot the aggregate demand curve and potential GDP line.

(b)If Po= 0.5 what is Yo? Does this place upward or downward pressure on prices? Explain.

(c) Compute the path of the economy, that is , calculate real GDP, the price level, the inflation rate and real money stock for each year until GDP I swithin 1% of the potential. (limit calculated values to 10 decimals points)

Reference no: EM1311620

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