Assume that the long-run aggregate supply curve is vertical at Y = 3,000, while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 3 × M / P, and M = 1,000.
a.If the economy is initially in long-run equilibrium, what are the values of P and Y?
b.Now suppose a supply shock moves the short-run aggregate supply curve to P = 1.5. What are the new short-run P and Y?
c.If the aggregate demand curve and long-run aggregate supply curve are unchanged, what are the long-run equilibriumPandYafter the supply shock?
d.Suppose that after the supply shock the Bank of Canada wanted to hold output at its long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium P and Y?

Question

Quizplus · Accepted Answer

The Answer of Assume that the long-run aggregate supply curve is vertical at Y = 3,000, while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 3 × M / P, and M = 1,000.
a.If the economy is initially in long-run equilibrium, what are the values of P and Y?
b.Now suppose a supply shock moves the short-run aggregate supply curve to P = 1.5. What are the new short-run P and Y?
c.If the aggregate demand curve and long-run aggregate supply curve are unchanged, what are the long-run equilibriumPandYafter the supply shock?
d.Suppose that after the supply shock the Bank of Canada wanted to hold output at its long-run level. What level of M would be required? If this level of M were maintained, what would be long-run equilibrium P and Y?

Assume That the Long-Run Aggregate Supply Curve Is Vertical at Y