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Consider a New Classical model. Suppose there is a positive demand side shock. In the short run, which of the following is something we would
Consider a New Classical model. Suppose there is a positive demand side shock. In the short run, which of the following is something we would observe? A. AYanticipated > AYunanticipated B. APanticipated APunanticipated D. AYanticipated AYunanticipated Consider a New Classical Economy with the following setup: SRAS: Y4 = Y + 0(Pt - P!) +n Inverse AD: Pt = a - BY Parameters: a 10, B = }, 7 = 15, 0 = 6, n = 0) Assume the economy is initially at its long run equilibrium. Suppose a shock to the economy causes a to rise from 10 to 25. What is the short run change in price in cases where the shock is (i) unanticipated and, (ii) anticipated? A. (i)AP = 5 and, (ii)AP = 15 B. (i)AP = 7 and, (ii)AP = 15 C. (i)AP = 5 and, (ii)AP = 10 D. (i)AP = 7 and, (ii)AP = 10
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