Consider a closed economy that can be described by the AD-AS model.In addition, prices can adjust to a change in aggregate demand or aggregate supply.

Planned aggregate expenditure:AEPlanned= 1000 - 2P + 0.8Y

Short-run aggregate supply (SRAS):P = (100 + 0.1Y)(W/120), where W = wage

Part (a)Find the long-run equilibrium price and wage if the long-run production capacity is 4000.

Part (b)Recently there is a change in the short-run aggregate supply such that the new SRAS becomes:

P = (70 + 0.1Y)(W/120)