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Supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is an increase in

Supply shocks and the medium run

Consider an economy with output equal to the natural level of output. Now suppose there is an increase in unemployment benefits.

  • Usingthemodeldevelopedinthischapterwithaninterestraterule,showtheeffectsofanincreaseinunemploymentbenefitsonthepositionoftheADandAScurvesbothintheshortrunandinthemediumrun.
  • How will the increase in unemployment benefits affect output and the price level in the short run and in the medium run?

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