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6. (4points) Assume that the long-run aggregate supply curve 1s vertical at =3 000, while the short-run aggregate supply curve 1s horizontal at P =

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6. (4points) Assume that the long-run aggregate supply curve 1s vertical at =3 000, while the short-run aggregate supply curve 1s horizontal at P = 1.0. The aggregate demand curve 1s =3 = M/P, and M= 1,000. a. If the economy 1s mitially 1n long-run equilibrium, what are the values of P and 7 b. Now suppose a supply shock moves the short-run aggregate supply curve to P= 1.5. What are the new short- run P and I7 c. If the aggregate demand curve and long-run aggregate supply curve are unchanged, what are the long-run equilibrium P and after the supply shock? d. Suppose that after the supply shock the Fed wanted to hold output at itz long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium F and 7

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