Figure 10-1

If the price level in Figure 10-1 were 120,

Question

Figure 10-1

If the price level in Figure 10-1 were 120,

Quizplus · Accepted Answer

If the price level is 120 in Figure 10-1, the aggregate quantity supplied (AS) is greater than the aggregate quantity demanded (AD), indicating there would be excess goods on the market. This is shown by the intersection of AS and AD at a quantity higher than the quantity where the short-run aggregate supply (SRAS) curve intersects with the aggregate demand (AD) curve. This excess supply would put downward pressure on prices, leading to a decrease in the price level. Therefore, firms would have to lower their prices to clear their inventories.

Figure 10-1 If the Price Level in Figure 10-1 Were 120