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1.Suppose an economy is described by equations for the aggregate demand (AD) and short-run ggregate supply (SAS) curves: AD: Y =1.25Ap + 2.5- MS P

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1.Suppose an economy is described by equations for the aggregate demand (AD) and short-run ggregate supply (SAS) curves: AD: Y =1.25Ap + 2.5- MS P SAS: Y =12,500 - 20W + 1,000P where Y is real GDP, A, the amount of autonomous planned spending that is the independent of the interest rate, Mis the nominal money supply, P is the price level, and W is the nominal wage rate. Assume that A = 5,000, MS = 2,500, W=50, and natural real GDP, Y equals 12,500. (a) Calculate the short-run and long-run equilibrium values of the real GDP, the price level, and the real wage for this economy. (6%) (b) Estimate the short-run equilibrium values of the real GDP and the price level approximately when autonomous planned spending decreases by 1,000 billion. (c) Calculate the nominal wage rate and derive the new short-run aggregate supply curve representing the economy after adjusting for the new long-run equilibrium price level and the real GDP

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