Final answer:
To plot the AD/AS graph, label the axes, and draw the curves. The equilibrium is where the AD and AS curves intersect. Unemployment would be relatively low in this economy if it is in equilibrium, and concern about inflation would be relatively low as well. A decrease in consumer confidence would shift the AD curve leftward, resulting in a lower level of output, a lower price level, and potentially a decrease in employment.
Step-by-step explanation:
a. Plot the AD/AS diagram. Identify the equilibrium.
To draw and correctly label the AD/AS graph, you can follow these steps:
Draw the aggregate demand (AD) curve downward sloping and the aggregate supply (AS) curve upward sloping.
The equilibrium is where the AD and AS curves intersect. Label this point as 'Equilibrium.'
b. Would you expect unemployment in this economy to be relatively high or low?
If the economy is in equilibrium, unemployment is relatively low because it means that the economy is producing at its full potential level of output.
c. Would you expect concern about inflation in this economy to be relatively high or low?
If the economy is in equilibrium, concern about inflation is relatively low because it means that the price level is stable.
d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.
The new aggregate equilibrium will occur at a lower level of Real GDP and a lower price level, as the decrease in consumer confidence leads to a decrease in aggregate demand.
e. How will the shift in AD affect the original output, price level, and employment?
The shift in aggregate demand will decrease the original level of output, lower the price level, and potentially lead to a decrease in employment if businesses reduce production due to the decreased demand.
An AD/AS graph is used to depict how changes in economic factors such as consumer optimism or legislation like universal healthcare impact an economy's equilibrium, output, price level, and employment. A decrease in consumer optimism shifts the AD curve left, leading to higher unemployment and lower inflation concerns. The effect of universal healthcare on AD/AS depends on its economic impact.
To represent the requested economic scenarios involving changes in aggregate demand and aggregate supply, we would use an AD/AS graph. The aggregate demand curve (AD) typically slopes downward, reflecting the inverse relationship between the price level and the quantity of output demanded. The aggregate supply curve (AS) slopes upward, indicating that as the price level rises, producers are willing to supply more.
Identifying the equilibrium: The point where the AD and AS curves intersect is the equilibrium point, where the economy's output and price level are determined.
Expectations of unemployment and inflation: If the economy is at equilibrium, whether unemployment is high or low depends on whether the equilibrium is near the potential output level. Unemployment tends to be lower when the economy is producing near its potential output. Concern about inflation would be lower if the AD is stable and AS is high enough to meet demand without upward pressure on prices.
Scenario - Decrease in Consumer Optimism: When consumer optimism decreases, the AD curve shifts to the left. The new aggregate equilibrium will be at a lower quantity of output and, typically, a lower price level. This shift in AD would likely result in higher unemployment and a reduced concern about inflation due to decreased consumer spending.
Scenario - Successful Passage of a Universal Healthcare System: The passage of universal healthcare might have various effects. It could increase aggregate demand due to more disposable income, or it may shift AS to the right (if it led to a healthier workforce and lower healthcare costs for employers). However, without specific details, it's difficult to determine the exact shift on the graph.