9. Suppose an economy is in long-run equilibrium. A.) Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. B.) The central bank raises the money supply by 5%. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium (call it point B). C.) Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to point C? D.) According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C?
9. Suppose an economy is in long-run equilibrium.
A.) Use the model of aggregate
B.) The central bank raises the money supply by 5%. Use your diagram to show what happens to output and the
C.) Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to point C?
D.) According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
