An Economy Is Described by the Aggregate-Demand Curve Y=70-P and the Short-Run

question 118

Essay

An economy is described by the aggregate-demand curve Y=70-P and the short-run the aggregate-supply curve Y=10+2P.
a) If the economy is in long-run equilibrium, what are the long-run level of output, the actual, and the expected price level?
b) Suppose consumers' confidence in the economy declines so that the aggregate demand declines by 10 percent. Calculate the new short-run equilibrium. What is the rate of change in output induced by the decline in confidence? What is the inflation rate?
c) After a while, when some people observe the reduced economic activity and unemployment rises, they accept lower wages. Calculate the long-run output and price level.

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Definitions:

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A severe form of conduct disorder characterized by a repetitive and persistent pattern of behavior that violates the basic rights of others or major age-appropriate societal norms or rules.

Pica

An eating disorder involving the consumption of items not considered food, often non-nutritive substances like dirt or paper.

ADHD-H

Attention-deficit/hyperactivity disorder, hyperactive-impulsive type, characterized by symptoms of impulsivity and hyperactivity without significant inattention.

ADHD-HI

A subtype of Attention Deficit Hyperactivity Disorder characterized by high levels of hyperactivity and impulsiveness.