Assume that the long-run aggregate supply curve is veritical at Y=3,000 while the short run aggregate supply curve is horizontal at P= 1.0. The aggregate demand curve is given by Y=3(M/P) and M=1,000.
1. If the economy is initially in long run equilibruim, please calculat the equilibrium value of P and Y in the long run?
2. Now suppose a supply shock moves the short run aggregate supply curve to P=1.5. Please calculate the new short-run equilibrium for P and Y.
3. Suppose that after the supply shock the fed wanted to hold output at its long run level. What level of M would be required? If this level of M were maintained, what would be long run equilibrium P and Y
If anyone could help with any part of this question I would really appreciate this. I have no clue how to do. Pleasssse help.
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