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Why the coefficient of p on the ad equation is negative

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Reference no: EM133294944

Assignment:

Question: This question involves algebraically solving the system of two equations given by the AD and AS curves. The equations for the curves are given by:

AD: YAD = 710 - 30P + 5G

AS: YAS = 10 + 5P - 2Poil

Where Y is real GDP, P is the price level, G is the level of government purchases, and Pou is the world price of oil

a. Explain why the coefficient of P on the AD equation is negative, and the coefficient of G is positive

b. Explain why the coefficient of P on the AS curve is positive, and coefficient of Pou is negative.

c. Solve for the equilibrium value of real GDP and the price level as a function of G and Poil.

d. If G increases by one unit, how will the equilibrium Y and P change? If Poil increases by one unit, how will the equilibrium Y and P change?

Reference no: EM133294944

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