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Calculating short- run equilibrium values of P also Y.

Consider the following classical closed economy with Lucas style monetary misperceptions

Aggregate demand (AD): Y= 1000- (250)/(M/P)

Short- run aggregate supply (SRAS): Y=Y * + 0.995(p-p*)

Full-employment output: Y*=900

Nominal money supply: M= 40000

A. Illustrate what is the value of P in long run equilibrium?

B. Now suppose which in Yr 1, pe equals the long- run equilibrium value of p which you Computed in part A also which the nominal money supply increases unexpectedly to M= 50000. Illustrate what are the new short- run equilibrium values of P also Y in yr 1?

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916622

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