Evaluate the Following Situations, Given a Lucas Supply Function Where

question 12

Essay

Evaluate the following situations, given a Lucas supply function where Y = 200 + 75(P - Pe), the current price level is 2, and the expected price level is 2.
(a) What happens to output when sudden oil shortages cause the price to increase from 2 to 2.5?
(b) The Federal Reserve was expected to enact a new policy that would have increased the price level from 2 to 2.4, but due to unexpected shocks the price level increased to 2.8. With these changes, what is the effect on output?
(c) The news media found unreported information that inflation would increase considerably under a recent fiscal policy package. What is the effect on output if the media reports to the public that, with this fiscal policy approach, inflation is expected to increase to a level of 3?

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Definitions:

Color Processing

The neurological process by which the brain interprets wavelengths of light as different colors, a function of the visual system.

Opponent-Process Cells

Specialized cells in the visual system that are used to detect color and are thought to work by encoding differences between the firing rates of pairs of color-sensitive neurons.

Thalamus

The brain’s sensory control center, located on top of the brainstem; it directs messages to the sensory receiving areas in the cortex and transmits replies to the cerebellum and medulla.

Feature Detectors

Specialized brain cells that identify specific elements or patterns, such as edges, motion, or colors, in the visual environment.