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

question 87

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-tun 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 checking 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-tun equilibrium, what are $P$ and $Y$ ?
f. What is the velocity now?

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Definitions:

Synthetic Steps

The individual stages or reactions in the laboratory synthesis of chemical compounds.

Major Organic Product

The predominant product formed in greater quantity in an organic reaction, as opposed to any minor products.

Pyridinium Chlorochromate

A reagent used in organic chemistry for the oxidation of primary and secondary alcohols to aldehydes and ketones, respectively.

1-Octanol

An organic compound with the chemical formula C8H18O, characterized as a fatty alcohol with a pungent smell, used in the manufacture of perfumes and flavors.