Refer to the table below that shows the data of a country. The table given above 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 the figures are in billions of dollars.If the country's aggregate supply curve is a vertical line at the $25 billion level of real GDP, the price level will be: A)128. B)125. C)122. D)119.

Question

Quizplus · Accepted Answer

The equation for aggregate expenditure is: AE = C + I + G + (X-M). Plugging in the values from the table, we get: AE = 500 + 200 + 400 + (250-300) = 1050 - 50 = 1000 billion dollars. Since the aggregate supply curve is a vertical line at the $25 billion level of real GDP, we know that output is fixed and equal to $25 billion. Therefore, the price level can be calculated as: price level = aggregate expenditure / real GDP = 1000/25 = 40. Multiplying this by the base year price level of 100 gives us a price index of 4000. Dividing this by 32 (the base year real GDP) gives us a price level of approximately 125.

Refer to the Table Below That Shows the Data of a Country