Essentials Of Economics, Loose-leaf Version
Essentials Of Economics, Loose-leaf Version
8th Edition
ISBN: 9781337096898
Author: N. Gregory Mankiw
Publisher: South-Western College Pub
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Chapter 23, Problem 1PA

Sub part (a):

To determine

Long run equilibrium in AD-AS model.

Sub part (b):

To determine

Long run equilibrium in AD-AS model.

Sub part (c):

To determine

Long run equilibrium in AD-AS model.

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Now suppose that a boom in stock market causes aggregate demand to rise. Use your diagram to show what happens to output and the price level in the short run. What happens to the unemployment rate? Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply.
Suppose an economy is in long-run equilibrium. a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. b. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium (call it point B). c. Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to point C? d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal…
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