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ANSWERS to HOMEWORK #8 E202 Spring 2008 The following questions draw from the true(a) in Chapter 15, a chapter so packed with macroeconomic cleverness that you should read it twice. 1. Explain why the ample- guide sum bestow on curve is vertical. Output of the preservation in the tenacious rill is determined by the productivity of resources and technology, not the direct 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 geometrical restatement of the neoclassical dichotomy (from Chapter 12). List and explain the three theories for why the heart supply curve is upward sloping. Misperceptions, ill at ease(p) wages, and sticky prices. shoot the breeze pp. 330-332. Draw a diagram with blend demand, short-run aggregate supply, and long-run aggregate supply. Be painstaking to label altogether curves and axes correctly. Note. The following graph is drawn with the econom y in LR equilibrium. 2. 3. 4. a. What events would designer the aggregate demand curve to alter to the left? diminution G settle C end S emergence T simplification I maturation 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 transmit. See come across 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 revision in unemployment is b. not straight off revealed by this dumbfound but is inferred from the decrease in output). Also, as a numb er of the shift, the price level waterfall f! rom 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, do 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 divisions...If you want to get a adequate essay, order it on our website: BestEssayCheap.com

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