The long-run AS curve is given as Y =100. a) Derive the SRAS curve. (Note: The value of EP is not specified. You need to leave it as EP in your SRAS curve.) b) Suppose that the economy is currently at the long-run equilibrium. Determine the equilibrium values of Y, P, and EP. Also draw the AD, SRAS, and LRAS curves to describe the equilibrium. c) Suppose that, as a result of an expansionary fiscal policy, the aggregate demand changes to: Y=330–2P. Suppose that this policy was not expected. Describe the short-run equilibrium using the AD, SRAS, and LRAScurves. Determine the equilibrium values of Y, P, and EP.
The long-run AS curve is given as Y =100. a) Derive the SRAS curve. (Note: The value of EP is not specified. You need to leave it as EP in your SRAS curve.) b) Suppose that the economy is currently at the long-run equilibrium. Determine the equilibrium values of Y, P, and EP. Also draw the AD, SRAS, and LRAS curves to describe the equilibrium. c) Suppose that, as a result of an expansionary fiscal policy, the aggregate demand changes to: Y=330–2P. Suppose that this policy was not expected. Describe the short-run equilibrium using the AD, SRAS, and LRAScurves. Determine the equilibrium values of Y, P, and EP.
Chapter5: Introduction To Macroeconomics
Section: Chapter Questions
Problem 3.4P
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Transcribed Image Text:Problem 2. Consider the following economy. The aggregate demandcurve is
given as: Y=300–2P.
The aggregate supply curve is derived from the sticky-price model. The fraction of
the firms with sticky prices is s while the fraction of the firms with flexible prices is
(1-s). Assume s=0.5.
The firms with flexible prices set their prices following: p/=P+(Y-Y )
The firms with sticky prices set their prices following: p==EP.
Transcribed Image Text:The long-run AS curve is given as Y =100.
a) Derive the SRAS curve. (Note: The value of EP is not specified. You need
to leave it as EP in your SRAS curve.)
b) Suppose that the economy is currently at the long-run equilibrium. Determine
the equilibrium values of Y, P, and EP. Also draw the AD, SRAS, and LRAS
curves to describe the equilibrium.
c) Suppose that, as a result of an expansionary fiscal policy, the aggregate
demand changes to: Y=330–2P. Suppose that this policy was not expected.
Describe the short-run equilibrium using the AD, SRAS, and LRAScurves.
Determine the equilibrium values of Y, P, and EP.
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