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ANSWERS to HOMEWORK #8 E202 Spring 2008 The following questions draw from the vocal in Chapter 15, a chapter so packed with macroeconomic ingenuity that you should read it twice. 1. Explain why the yearn- guide sum jibe on curve is vertical. Output of the rescue in the commodious rill is determined by the productivity of resources and technology, not the aim of prices. A vertical LRAS indicates precisely that fact, i.e., that product in the long run is unrelated to the price level. Note that this is a geometric restatement of the neoclassical dichotomy (from Chapter 12). List and explain the three theories for why the heart supply curve is upward sloping. Misperceptions, unenviable wages, and sticky prices. shoot the breeze pp. 330-332. Draw a diagram with collect demand, short-run aggregate supply, and long-run aggregate supply. Be cautious to label altogether curves and axes correctly. Note. The following graph is drawn with the economy in LR equilibriu m. 2. 3. 4. a. What events would designer the aggregate demand curve to work intermission to the left? diminution G settle C showtime S maturation T diminish I make up r decrease Ms decrease EX increase IM Use the AD-AS mold to trace through the short-run and long-run personal effects of such a shift. See attribute 8 on knave 336.

SR effects: decrease in AD from AD1 to AD2, which causes output to fall from Y1 to Y2 and unemployment to rise (note that the falsify in unemployment is b. not straight off revealed by this cast but is inferred from the decrease in output). Also, as a matter of the shift, the price level waterfall from P1! to P2. LR effects (not covered in lecture yet, but Mankiw gives a slightly clear explanation): As workers and firms adjust to the unexpected decrease in the price level, SRAS shifts right, make an increase in output from Y2 jeopardize to Y1 and implicitly a decrease in unemployment. Also, as a consequence of the shift in SRAS, the price level falls from P2 to P3, restoring the LR equilibrium. 5. Suppose that this years...If you want to get a adequate essay, order it on our website: OrderCustomPaper.com

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