Assume That the Long-Run Aggregate Supply Curve Is Vertical at Y

question 88

Essay

Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0.The aggregate demand curve is Y = 2(M/P)and M = 1,500.a.If the economy is initially in long-run equilibrium,what are the values of P and Y?
b.What is the velocity of money in this case?
c.Suppose because banks start paying interest on chequing accounts,the aggregate demand function shifts to Y = (1.5) (M/P).What are the short-run values of P and Y?
d.What is the velocity of money in this case?
e.With the new aggregate demand function,once the economy adjusts to long-run equilibrium,what are P and Y?
f.What is the velocity now?

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Definitions:

Rising Wages

An economic condition where the average wage level in an economy increases over time, potentially affecting inflation and purchasing power.

GDP

Gross Domestic Product (GDP) measures the total economic output of a country within a given time period, reflecting the overall health of its economy.

Health Care Spending

The total amount of money spent on health services, medications, and health-related research and public health initiatives within a country.

Medicare

A federal program in the United States that provides health insurance to people over the age of 65 and to certain younger people with disabilities.