4. Answer all parts (a)-(d) of this question. (a) [8 marks] Explain how it is possible to obtain a positively sloped sho
Posted: Thu May 26, 2022 7:48 am
4. Answer all parts (a)-(d) of this question. (a) [8 marks]
Explain how it is possible to obtain a positively sloped short-run
aggregate supply function from the “sticky price” model. (b) [4
marks] Provide one explanation for the negative relationship
between the aggregate price level and the aggregate output implied
by an aggregate demand function. (c) [6 marks] In a diagram, draw
the AD-AS model with fixed prices in the short-run. Starting from
long-run equilibrium, suppose that there is a negative shock on the
aggregate demand. Explain the short-run and long-run effects of
this negative demand shock. (d) [7 marks] Now suppose that the
short-run aggregate supply is positively sloped. Explain the
short-run and long-run effects of a negative demand shock paying
attention to the role of expectation. Compare your answer with case
(c).
Explain how it is possible to obtain a positively sloped short-run
aggregate supply function from the “sticky price” model. (b) [4
marks] Provide one explanation for the negative relationship
between the aggregate price level and the aggregate output implied
by an aggregate demand function. (c) [6 marks] In a diagram, draw
the AD-AS model with fixed prices in the short-run. Starting from
long-run equilibrium, suppose that there is a negative shock on the
aggregate demand. Explain the short-run and long-run effects of
this negative demand shock. (d) [7 marks] Now suppose that the
short-run aggregate supply is positively sloped. Explain the
short-run and long-run effects of a negative demand shock paying
attention to the role of expectation. Compare your answer with case
(c).