Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves, if more than one diagrams are drawn for this question, I will give a zero grade for this question] 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 10%. Use the diagram you drew in part a) to show what happens to output and price level as the economy moves from initial equilibrium A to the new short-run equilibrium (call it point B). Explain all the details about the changes that happen due to increase in money supply and how these changes affect the model. c. Show how economy moves from the short run equilibrium (point B) to the new long-run equilibrium (call it C) and explain why it moves to C.
Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves, if more than one diagrams are drawn for this question, I will give a zero grade for this question] 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 10%. Use the diagram you drew in part a) to show what happens to output and price level as the economy moves from initial equilibrium A to the new short-run equilibrium (call it point B). Explain all the details about the changes that happen due to increase in money supply and how these changes affect the model. c. Show how economy moves from the short run equilibrium (point B) to the new long-run equilibrium (call it C) and explain why it moves to C.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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These are all the same question, i really need a solution to all the parts .
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![QUESTION 4 Chapter 14
Suppose economy is in long run equilibrium. [Only one
diagram is required for this question, draw and label
clearly to show all relevant points and moves, if more than
one diagrams are drawn for this question, I will give a zero
grade for this question]
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 10%. Use
the diagram you drew in part a) to show what happens
to output and price level as the economy moves from
initial equilibrium A to the new short-run equilibrium (call
it point B). Explain all the details about the changes that
happen due to increase in money supply and how these
changes affect the model.
c. Show how economy moves from the short run
equilibrium (point B) to the new long-run equilibrium (call
it C) and explain why it moves to C.
d. According to 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?
e. According to sticky wage theory of aggregate supply,
how do real wages at point A compare to real wages at
point B? How do real wages compare to real wages at
point C?
f. Judging by the impact of the money supply on nominal
and real wages, is this analysis consistent with the
proposition that money has real effects in the short run
but is neutral in the long run?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbd0201f3-b1ec-4954-8ef8-ed92d6c8ee6d%2F742e381b-bd79-429a-a196-c97cc566d890%2F1qg1z3u_processed.jpeg&w=3840&q=75)
Transcribed Image Text:QUESTION 4 Chapter 14
Suppose economy is in long run equilibrium. [Only one
diagram is required for this question, draw and label
clearly to show all relevant points and moves, if more than
one diagrams are drawn for this question, I will give a zero
grade for this question]
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 10%. Use
the diagram you drew in part a) to show what happens
to output and price level as the economy moves from
initial equilibrium A to the new short-run equilibrium (call
it point B). Explain all the details about the changes that
happen due to increase in money supply and how these
changes affect the model.
c. Show how economy moves from the short run
equilibrium (point B) to the new long-run equilibrium (call
it C) and explain why it moves to C.
d. According to 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?
e. According to sticky wage theory of aggregate supply,
how do real wages at point A compare to real wages at
point B? How do real wages compare to real wages at
point C?
f. Judging by the impact of the money supply on nominal
and real wages, is this analysis consistent with the
proposition that money has real effects in the short run
but is neutral in the long run?
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