For the remainder of the exam you may need to solve a quadratic equation of the form ax2 + bx+c=0. The solutions to this

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For The Remainder Of The Exam You May Need To Solve A Quadratic Equation Of The Form Ax2 Bx C 0 The Solutions To This 1 (114.45 KiB) Viewed 58 times

For the remainder of the exam you may need to solve a quadratic equation of the form ax2 + bx+c=0. The solutions to this equation take the form T = -6 + 62 – 4ac 2a 3. (25 points) Consider the following economy: • Desired Consumption: Cd = 250 +0.5(Y – T) - 500r • Desired Investment: Id = 150 - 500r • Real Money Demand: L = 0.5Y - 1000i • Full-employment output: Y = 1000 • Expected inflation: 7° = 0 (a) Suppose that T = G = 200 and M = 1000. Give an expression for aggregate demand: For any given price level P find the level of output such that both the goods market and the asset market is in equilibrium. (b) Assume that Short Run Aggregate Supply (SRAS) is given by Y = y + 100(P - Pº). (1) What is the expected price level such that the economy is at full employment output when 7 = 1000? (c) What will be the short run price level and output if there is an unanticipated productivity shock reducing 7 to 900? ( Hint: The SRAS moves with 7 ) (d) Depict this graphically. Draw the following curves: Aggregate Demand (label AD),Long Run Aggregate Supply when 7 = 1000 (label LRAS), Long Run Aggregate Supply when 7 = 900 (label LRAS), Short Run Aggregate Supply when Y = 1000 (label SRAS), and Short Run Aggregate Supply when 7 = 900 (label SRAS')