Question
Assume that the long-run aggregate supply curve is vertical at Y = 6,000, while the short-run aggregate supply curve is horizontal at P = 2.0.
Assume that the long-run aggregate supply curve is vertical at Y = 6,000, while the short-run aggregate supply curve is horizontal at P = 2.0. The aggregate demand curve is Y = 2 M / P, and M = 2,000.
a. If the economy is initially in long-run equilibrium, what are the values of P and Y?
b. Now suppose a supply shock moves the short-run aggregate supply curve to P = 4. What are the new short-run P and Y?
c. If the aggregate demand curve and long-run aggregate supply curve are unchanged, what are the long-run equilibrium P and Y after the supply shock?
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