Q1. Imagine that an economy begins in equilibrium at the natural rate of output. It is shocked by a reduction in the Sho

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Q1 Imagine That An Economy Begins In Equilibrium At The Natural Rate Of Output It Is Shocked By A Reduction In The Sho 1 (29.31 KiB) Viewed 64 times

Q1. Imagine that an economy begins in equilibrium at the natural rate of output. It is shocked by a reduction in the Short Run Aggregate Supply curve. The Long Run Aggregate Supply curve remains at the natural rate of output. Use an Aggregate Demand - Aggregate Supply model to explain the changes in the economy from this shock. a) Show both the short-run and the long-run positions of the economy. b) Explain what is happening as the economy moves from the short-run to the long-run position. c) Discuss all the possible policy options available to return to the original level output and/or the original price level. Describe any consequences. (30%)