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Monetary Contraction Suppose the central bank wants to decrease the price level, but the economy is already at the natural rate of output.
a. Show the short and long run effects of a monetary contraction in this situation in the AD/AS model. You can omit the labor market and production function graphs and you may assume sticky prices for SRAS.
b. As you can see from above (hint), in the long run output stays the same and we are left with lower prices. What happens in the Short Run if the central banks tries this strategy over and over again?
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Discuss the relationship existing between production and cost. What is the MC function of the above TC function?
Frederic Bastiat (1801 - 1850) was a French political economist famous for exploding popular economic misconceptions
At a price of $24, should a perfectly competitive firm operate or shut down in a the short run if its TC is given as:
The Wall Street Journal reported that recent law school graduates were having a very difficult time getting jobs in the legal profession. Many law schools said that ten to 20% of their graduates still had not found jobs.
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