Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics And The Environment A Materials Balance Approach

Authors: Allen V Kneese, Robert U Ayres, Ralph C D'Arge

1st Edition

1317402251, 9781317402251

More Books

Students also viewed these Economics questions

Question

Do not come to the conclusion too quickly

Answered: 1 week ago

Question

Engage everyone in the dialogue

Answered: 1 week ago