Assume that the long-run aggregate supply curve is vertical at Y = 5000 while the short-run aggregate supply curve is horizontal at P = i.The
Assume that the long-run aggregate supply curve is vertical at Y = 5000 while the short-run aggregate supply curve is horizontal at P = i.The aggregate demand curve is Y = 2(MIP] and M = 2500. a. If the economy is initially in long-run equilibrium, what are the values of P and Y? P 1 V ,' Y 5000 V b. If M increases to 3000, what are the new shortrun values of P and Y? P 1 V ,' Y 6000 V c. Once the economy adjusts to longrun equilibrium at M = 3000, what are P and Y? P 1.2 V ,'Y 5000 V Assume that the long-run aggregate supply curve is vertical at Y = 3000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(IWP) and M =1500.a.|fthe economy is initially in long-run equilibrium,what are the values of P and Y? P 1 V-;Y 3000 V b. Iviihat is the velocity of money in this case? velocity 2 V c. Suppose because banks start paying interest on checking accounts, the aggregate demand function shifts to Y = (1.5) (WP). What are the short-run values of P and Y? P 1 V :Y 2250 V d. What is the velocity of money in this case? velocity 1.5 V e. With the new aggregate demand function, once the economy adjusts to longrun equilibrium, what are P and Y? P 0.75 V ;Y 3000 V 1'. What is the velocity novv'.J velocity 2 X
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