3) Suppose the economy is in a long-run equilibrium. Now, suppose the business firms collectively become pessimistic abo

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3 Suppose The Economy Is In A Long Run Equilibrium Now Suppose The Business Firms Collectively Become Pessimistic Abo 1 (43.95 KiB) Viewed 17 times

3) Suppose the economy is in a long-run equilibrium. Now, suppose the business firms collectively become pessimistic about prospects for future profits because of continued worries about terrorism and violence. Using the AD-AS model diagram, explain how this would affect investment, aggregate demand, output, and the price level in the short run. What happens in the long run () if there is no government/central bank intervention; and (ii) if the central bank intervenes? In case (ii) what type of policy will the central bank implement? (4 points) 4) Suppose the price level in South Korea is 120,000, the price level in the United States is 150, and the price level in Mexico is 600. Suppose the current nominal exchange rates are 1080 South Korean won per dollar and 5 pesos per dollar. Calculate the real exchange rates (rounded to two decimal places) between each pair of countries. Note that you will have to first calculate the nominal exchange rate between Mexico and South Korea before calculating the real exchange rate between those two countries. (3 points)