For Shock E: Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts. Determine how the price level and output will be affected in the short run. Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession? On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism. Determine how the price level and output will be affected in the long run. E. The government raises unemployment benefitsAs time passes, because of high unemployment the wages in the economy will? (decrease/increase)As a result, the SRAS curve will shift ? (right/left), causing the price level to ? (increase/fall) and output to eventually return to its long run level Y*.

The temporary amount of income being received by an individual when he/she loses their job due to no…

Answered: For Shock E: Suppose the economy…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 18QP

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For Shock E:

Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts.
Determine how the price level and output will be affected in the short run.
Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession?
On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism.
Determine how the price level and output will be affected in the long run.

E. The government raises unemployment benefits

As time passes, because of high unemployment the wages in the economy will? (decrease/increase)

As a result, the SRAS curve will shift ? (right/left), causing the price level to ? (increase/fall) and output to eventually return to its long run level Y*.

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