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 7:57 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).
(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).