Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 13, Problem 16E
(a)
To determine
Parameter and inflation rate.
(b)
To determine
Calculate the inflation rate short-run output.
(c)
To determine
Relationship between the inflation rate and short-run output.
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The mainstream view of macroeconomic instability emphasizes sticky prices. To answer the following questions, modify the aggregate supply curve in the extended AD-AS model introduced in Chapter 35. First, imagine that both input and output prices are fifixed. What does the aggregate supply curve look like? If AD decreases in this situation, what will happen to equilibrium output and the price level? Next, imagine that input prices are fifixed, but output prices are flexible. What does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? Finally, if both input and output prices are fully flflexible, what does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? (Hint: If you are having trouble drawing these three aggregate supply curves, review the immediate-short-run aggregate supply curve and the short-run aggregate supply curve…
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Use the IS-LM model to describe the short-run effects of an increase in the money supply on the equlibrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long-run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.
Chapter 13 Solutions
Macroeconomics (Fourth Edition)
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