Question

a. If the money supply is $800 and velocity is constant at 2.5, what is the aggregate demand curve (function)?

b. If the long-run aggregate supply is y=400 what will the (long-run) equilibrium price level be?

c. If the money supply decreases to $600 what will happen to output and the price level in the long run? Show this on a graph.

Answer #1

a) Use the rule P x Y = M x V under quantity theory of money

P x Y = 800 x 2.5 = 2000

Hence AD function is Y = 2000/P

B) LRAS is Y = 400. Hence the long run price level is AD = AS or 400 = 2000/P. This gives P = 2000/400 = 5

C) Now M is 600 so we have

P x Y = 600 x 2.5 = 1500

Hence AD function is Y =1500/P

Price level 1500/400 = 3.75 and Y = 400. This shows that in the long run when aggregate supply is fixed, output stays at 400 and all the decrease in money supply is reflected in a decline in price level

Velocity is 5
Money supply is 120
Current price level is 6
Full employment level of output is 100
Illustrate graphically the aggregate demand curve, the short run
aggregate supply curve, and the long run aggregate supply
curve.Illustrate graphically the aggregate demand curve, the short
run aggregate supply curve, and the long run aggregate supply curve
and what is the long run aggregate price level?

Velocity is 5 Money supply is 120 Current price level is 6 Full
employment level of output is 100 1a. Illustrate graphically the
aggregate demand curve, the short run aggregate supply curve, and
the long run aggregate supply curve. 1b. What is the long run
aggregate price Level?

CHAPTER 9 MACRO (20 ECON)
Aggregate Price Level
Output (short-run aggregate supply)
Output (aggregate demand)
150
1000
200 + 200 = 400
125
800
400 + 200 = 600
100
600
600 + 200 = 800
75
400
800 + 200 = 1000
50
200
1000 + 200 = 1200
D. Short-run aggregate supply needs to decrease by __ at every
price in order for the economy to return to long-run equilibrium at
an output of 600. The aggregate price...

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. (Hint: draw a graph on this page to help you work through this
question)
1) What is the velocity of money in this case?
2) Suppose the aggregate demand function shifts to Y =
(1.5)(M/P). What are the short-run values of...

1. Suppose you have the following AD and AS
curves:
Y = 800 − 40π (AD equation)
Y = −50 + 60π (Short Run AS equation)
Y = 400 billion (Long Run output)
(a) Calculate the real GDP and inflation in
equilibrium in the short run. Calculate the
current output gap.
(b) Is the economy in the short run facing a
recession or an expansion? Explain.
(c) Was the recession or expansion caused by
demand or a supply shock? Explain....

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the price level is $3. Using the quantity theory of money: a.
Determine the level of real output. b. Determine the level of
nominal output. c. Assuming velocity remains constant, what will
happen if the money supply rises 20 percent? Nominal output would
be $?? and real output would be $?? d. If the government
established price controls and also raised the money supply 5
percent, what...

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Determine the level of real output. b. Determine the level of
nominal output. c. Assuming velocity remains constant, what will
happen if the money supply rises 20 percent? d. If the government
established price controls and also raised the money supply 5
percent, what would happen? Instructions: You may select more than
one answer. Click...

1.The money supply in Freedonia is $800 billion. Nominal
GDP is $200billion and real GDP is $300 billion. What are the price
level and velocity in Freedonia?
2.The aggregate production function demonstrates the
fact that the marginal product of labor increases at a(n) what
rate?
3. In the Four-Graph macroeconomic long-run model (labor
market, aggregate production function, the diagonal line to shift
Y, and AD-AS), what does it say about output and
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4. Suppose the economy has only two...

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inflation occurs when the aggregate __________ curve shifts
_______.
A. demand, right
B. demand, left
C. supply, right
D. supply, left
12. When the
aggregate price level decreases, the resulting decrease in interest
rates will most likely ___________ investment and _____________
consumption.
A. increase, increase
B. increase, decrease
C. decrease, increase
D. decrease, decrease
13. The economy is
operating at full capacity. The long-run aggregate
supply curve is __________. In the long run, an increase
in the aggregate price level will __________ output.
A. horizontal, increase
B. horizontal, not change
C. vertical, increase
D. vertical,...

Assume the money supply is $500, the velocity of money is 8, and
the price level is $2. Using the quantity theory of money:
a. Determine the level of real output. $.
b. Determine the level of nominal output. $.
c. Assuming velocity remains constant, what will happen if the
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Nominal output would be
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