Suppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10),where π is inflation and Y is output;and the aggregate demand curve is Y= 11 - 0.5π. The equilibrium output is ________ and the equilibrium inflation rate is ________%.
A)10;2
B)17.5;2
C)2;10
D)10;7.5

Question

Quizplus · Accepted Answer

To find the equilibrium output and inflation rate, we need to set the aggregate supply (AS) equal to the aggregate demand (AD) and solve for Y and π. From the given AS equation π = 2 + 1.5(Y - 10) and the AD equation Y = 11 - 0.5π, we can substitute the expression for π from the AS equation into the AD equation to solve for Y. Doing so, we find that Y = 10, which when substituted back into either equation gives us π = 2. Therefore, the equilibrium output is 10 and the equilibrium inflation rate is 2%.

Suppose That the Short-Run Aggregate Supply Curve Is: π= 2