Assume that the central bank has an inflation target and it follows an interest rate rule. The economy is operating at the medium run equilibrium. a) Draw a neat diagram showing the AS-AD curves at the medium-run equilibrium. Carefully label the curves, the axes, and the significant points on the axes (Y, , , Y etc.). b) Explain in words why the AS curve slopes upward, and why the AD curve slopes downwards. Now suppose new digital technologies developments (think of Google, Amazon, Netflix, etc) occur that lead to a permanent decrease in the degree of competition in the economy - that is, an aggregate increase in firms' markup "m" on marginal cost. c) What will be the short run impact of these developments on the economy? Use an AS-AD diagram to explain your answer.

Assume that the central bank has an inflation target and it follows an interest rate rule. The economy is operating at the medium run equilibrium. a) Draw a neat diagram showing the AS-AD curves at the medium-run equilibrium. Carefully label the curves, the axes, and the significant points on the axes (Y, , , Y etc.). b) Explain in words why the AS curve slopes upward, and why the AD curve slopes downwards. Now suppose new digital technologies developments (think of Google, Amazon, Netflix, etc) occur that lead to a permanent decrease in the degree of competition in the economy - that is, an aggregate increase in firms' markup "m" on marginal cost. c) What will be the short run impact of these developments on the economy? Use an AS-AD diagram to explain your answer.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 5SQ

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