131) Use the dynamic model of aggregate demand and supply to illustrate a situation whereaggregate demand and short-run aggregate supply are both increasing from year 1 to year2, resulting in a higher price level and higher level of real GDP at macroeconomicequilibrium in year 2.131) Diff: 2 Page Ref: 814 - 816/440 - 442 Topic: Dynamic Aggregate Demand and Aggregate Supply Model Learning Outcome: Macro 7: Use the aggregate supply - aggregate demand model to explain aggregate fluctuations in output and inflation AACSB: Analytic Skills 36
132) Hurricane Katrina resulted in a decline in oil production infrastructure along the gulfcoast. As a result there was an unexpected decline in oil and natural gas supplies in 2005.Suppose that this caused an increase in the price level and a decline in real GDP in 2006.Also assume that potential real GDP continued to grow due to other factors. You canassume the aggregate demand curve did not change. Show the macroeconomicequilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demandmodel. 132)
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