New long-run equilibrium values

Assignment Help Business Economics

Reference no: EM139131

Q. Consider the following extended classical economy (in which the misperceptions theory holds):
AD Y = 300 + 10(M/P).
SRAS Y = ?+ P - P^e
Okun's law (Y - ?)/? = -2(u - u)
Full-employment output ? = 500.
Natural unemployment rate u = 0.06.

a) Assume which the money supply M = 1000 and which the expected cost level P^e = 50. Illustrate what are the short-run equilibrium values of output, Y, the cost level, P, and the unemployment rate, u? Illustrate what are the long-run equilibrium values of these three variables?

b) Now Assume which an unanticipated increase raises the nominal money supply to M = 1260. Illustrate what are the new short-run equilibrium values of output, Y, the cost level, P, and the unemployment rate, u? Illustrate what are the new long-run equilibrium values of these three variables? In general, are your results consistent with an expectations-augmented Phillips curve?

Reference no: EM139131

Questions Cloud

Existence of money reduce the costs : Explain how does the existence of money reduce the costs of making transactions relative to a society based entirely on barter.

Changes in marginal cost have no effect : Over Illustrate range will changes in marginal cost have no effect on CDW's profit-maximizing level of output.

Services purchased by the government of numidia : Illustrate what is the value of goods and services purchased by the government of Numidia.

Experimental approach to regression analysis : Describe the benefits and risks entailed with an experimental approach to regression analysis.

New long-run equilibrium values : Illustrate what are the new long-run equilibrium values of these three variables.

Output and the cost level play in this adjustment : Explicate Illustrate what will happen to output and the cost level play in this adjustment.

Seats should be protected for full-fare passengers : Explain how many seats should be protected for full-fare passengers.

Size of the economys recessionary- inflationary gap : illustrate what was the size of the economy's recessionary, inflationary gap

Amount of debt held by the public : Illustrate happens to the amount of debt held by the public. Illustrate what happens to the level of gross debt.

User Account

All Pages