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

question 15

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. If M increases to 2,000, what are the new short-run values of P and Y?
c. Once the economy adjusts to long-run equilibrium at M = 2,000, what are P and Y?

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Definitions:

Highly Centralized

A structural approach in organizations where decision-making authority is concentrated at the top levels of management.

Decision-making Power

The authority or capacity to make choices that will have consequences for oneself or others within an organizational or personal context.

Coordination

The act of organizing or aligning activities, tasks, and people efficiently and effectively to achieve a common goal or objective.

Accommodation

The process by which the eye’s lens changes shape to focus near or far objects on the retina.