Assume the economy of Chile is in a long-run equilibrium with full employment. In the short run, nominal wages are fixed. 1. Draw a correctly labeled graph of short-run aggregate supply, long-run aggregate supply, and aggregate demand. Show each of the following. a. Equilibrium output, labeled Y1 b. Equilibrium price level, labeled PL1 2. Assume that there is an increase in exports from Chile. On your graph in question 1, show the effect of higher exports on the equilibrium in the short run, labeling the new equilibrium output and price level Y2 and PL2, respectively. 3. Based on your answer in part (b), what is the impact of higher exports on real wages in the short run? Explain. 4. As a result of the increase in exports, export-oriented industries in Chile increase expenditures on new container ships and equipment. a. What component of aggregate demand will change? b. What is the impact on the long-run aggregate supply? Explain
Assume the economy of Chile is in a long-run equilibrium with full employment. In the short run,
nominal wages are fixed.
1. Draw a correctly labeled graph of short-run
and aggregate demand. Show each of the following.
a. Equilibrium output, labeled Y1
b.
2. Assume that there is an increase in exports from Chile. On your graph in question 1,
show the effect of higher exports on the equilibrium in the short run, labeling the new
equilibrium output and price level Y2 and PL2, respectively.
3. Based on your answer in part (b), what is the impact of higher exports on real wages in
the short run? Explain.
4. As a result of the increase in exports, export-oriented industries in Chile increase
expenditures on new container ships and equipment.
a. What component of aggregate demand will change?
b. What is the impact on the long-run aggregate supply? Explain.
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