Why does aggregate demand not depend on monetary policy? What is the natural rate of output? Suppose we are at the long run equilibrium. Suppose also that the government is running a balanced budget and world inflation is equal to 1. What are the values of G, T, Y, π and π ̄? If the government sets both G and T to 10, what will happen to Y and π in the short run?
Why does aggregate demand not depend on monetary policy? What is the natural rate of output? Suppose we are at the long run equilibrium. Suppose also that the government is running a balanced budget and world inflation is equal to 1. What are the values of G, T, Y, π and π ̄? If the government sets both G and T to 10, what will happen to Y and π in the short run?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Suppose that in a small open economy exchange rates are fixed. The AD and AS
AD:Y =110+2G−T−10π
AS:Y =105+10(π−π ̄)
where Y is output, G is government spending, T is taxes, π is inflation and π ̄ is core inflation.
Why does aggregate
What is the natural rate of output?
Suppose we are at the long run equilibrium. Suppose also that the government is running a balanced budget and world inflation is equal to 1. What are the values of G, T, Y, π and π ̄?
If the government sets both G and T to 10, what will happen to Y and π in the short run?
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