Assume that the long-run aggregate supplycurve is vertical at Y= 3,000 while the short-runaggregate supply curve is horizontal at P = 1.0.The aggregate demand curve is Y = 2(MIP) andM = 1,500.▪a. Is the economy is initially in long-runequilibrium?what are the values of P and Y?▪b. If M increases to 2,000, what are the newshort-run values of P and Y?▪c. Once the economy adjusts to long-runequilibrium at M = 2,000, what are P and Y?

Answered: "Assume that the long-run aggregate…

"Assume that the long-run aggregate supply curve is vertical at Y= 3,000 while the short-rur aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(MIP) anc M = 1,500.

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 3CQ

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Question

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 = 2(MIP) and
M = 1,500.
▪a. Is the economy is initially in long-run
equilibrium?what are the values of P and Y?
▪b. If M increases to 2,000, what are the new
short-run values of P and Y?
▪c. Once the economy adjusts to long-run
equilibrium at M = 2,000, what are P and Y?

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