Consider a positive shock to demand for goods and services. The demand shock (&) is assumed to persist for one period. In particular, suppose that &=1 for one period and then return to its normal value of zero. Using a graph of the dynamic AD-AS model, show the effect of this change on the economy. What happens to the inflation rate and output immediately upon the shock and in the long run?
Consider a positive shock to demand for goods and services. The demand shock (&) is assumed to persist for one period. In particular, suppose that &=1 for one period and then return to its normal value of zero. Using a graph of the dynamic AD-AS model, show the effect of this change on the economy. What happens to the inflation rate and output immediately upon the shock and in the long run?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter24: The Aggregate Demand/aggregate Supply Model
Section: Chapter Questions
Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...
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