Suppose that the Canadian economy is governed by the following equations Y = Y, - a(r -p)+e; T: = i- E17+1 T = E-1T +(Y - Y1) + vt E1T+1 = T i = T +p+0(7 – n)+by (Yt - Y;) (1) (2) (4) (5) Since the coefficient is negative, more sensitive implies a coefficient less than-80 (e.g.,-90,-100, etc). Recall that the sacrifice ratio is computed by dividing the output lost by the amount of disinflation. (a) Derive the long-run equilibrium for the dynamic AD-AS model. Assume there are no shocks to demand or supply and that inflation has stabilized.

Suppose that the Canadian economy is governed by the following equations Y = Y, - a(r -p)+e; T: = i- E17+1 T = E-1T +(Y - Y1) + vt E1T+1 = T i = T +p+0(7 – n)+by (Yt - Y;) (1) (2) (4) (5) Since the coefficient is negative, more sensitive implies a coefficient less than-80 (e.g.,-90,-100, etc). Recall that the sacrifice ratio is computed by dividing the output lost by the amount of disinflation. (a) Derive the long-run equilibrium for the dynamic AD-AS model. Assume there are no shocks to demand or supply and that inflation has stabilized.

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Question

Please help me out with solving for the long run equilibrium for the dynamic Ad-As model. Graph the impact of the demand shock and explain. Thanks!

3. A Dynamic AD-AS Model of the Canadian Economy
Suppose that the Canadian economy is governed by the following equations
Y = Y - a(r -p) + €;
YI = i-E+1
T = E1-17 +(Y- Yt)+v
E1T+1 = T
i = 7 +p+0(7 - n)+Oy(Y- Ý;)
(1)
(2)
(3)
(4)
(5)
Since the coefficient is negative, more sensitive implies a coefficient less than -80 (e.g.,-90, -100, etc).
2Recall that the sacrifice ratio is computed by dividing the output lost by the amount of disinflation.
(a) Derive the long-run equilibrium for the dynamic AD-AS model. Assume there are
no shocks to demand or supply and that inflation has stabilized.
(b) Now suppose that monetary-policy has the following rule
iį = T; +p +0r(7: – 7)+ Oy(Y; – Ýt)
where p is greater than p, implying monetary policymakers overestimate the natu-
ral rate of interest. The rest of the model is the same. Solve for the long-run equi-
librium under this case. Compare your long-run equilibrium to the one obtained in
(a)
(c) Suppose that the central bank follows the rule used in (a), but does not satisfy the
Taylor Principle so that 07 < 0. Use a graph to analyze the impact of a demand
shock. Does this analysis contradict the Taylor Principle as a guideline for monetary
policy?

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On the graph, label your starting AD line as AD 2019. Draw a new AD line showing the change to AD due to the pandemic. Label your starting SRAS line as SRAS 2019. Draw a new SRAS line showing the change to supply due to the pandemic.Label the new short-run equilibrium RGDP and Price Level. Does output (i.e. RGDP) increase or decrease in your model? Does the price level increase or decrease in your model? According to the AD-AS model when RGDP falls the unemployment rises and vice versa. Does your graph indicate an increase or decrease in the unemployment rate
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Use the graph below to answer questions #4-5. This graph depicts the AD-AS model, which involves the Aggregate Demand curve (AD), Aggregate Supply curve (AS) and Long Run Aggregate Supply curve (LRAS). Our assumptions with this model match those from class. LRAS AS AD Assume in the multiple choice questions below that our starting point is pt A. Assume that in the months leading up to a major election, the Federal government enacts legislation that significantly increases government spending. Assume further that government pays for this spending by increasing the money supply. Based on our discussion of the self-correcting mechanism, how would this policy affect the graph in the short run and long run? Itranscript Oa. in the short run, AD will increase, but over the long run, AS will eventually shift upward as workers begin to ask for cost of living increases from their employers Ob. in the short run, AD will increase, but over the long run. AS will eventually shift leftward as workers…
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