Assume that the long-run aggregate supply curve is vertical at Y = 3,000, while the short-run aggregate
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Question:
Assume that the long-run aggregate supply curve is vertical atY= 3,000, while the short-run aggregate supply curve is horizontal atP= 1.0. The aggregate demand curve isY= 3 M/P, andM= 1,000.
a.
If the economy is initially in long-run equilibrium, what are the values ofPandY?
b.
Now suppose a supply shock moves the short-run aggregate supply curve toP= 1.5. What are the new short-runPandY?
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