QUESTION 4 Chapter 14Suppose economy is in long run equilibrium. [Only one diagram is required for thisquestion, draw and label clearly to show all relevant points and moves, if more thanone diagrams are drawn for this question, I will give a zero grade for this question]a. Use the model of aggregate demand and aggregate supply to illustrate the initialequilibrium (call it point A). Be sure to include both-short run and long-run aggregatesupply.b. The central bank raises the money supply by 10%. Use the diagram you drew in parta) to show what happens to output and price level as the economy moves from initialequilibrium A to the new short-run equilibrium (call it point B). Explain all the detailsabout the changes that happen due to increase in money supply and how thesechanges affect the model.c. Show how economy moves from the short run equilibrium (point B) to the new long-run equilibrium (call it C) and explain why it moves to C.d. According to sticky wage theory of aggregate supply, how do nominal wages at pointA, compare to nominal wages at point B? How do nominal wages at point Acompare to nominal wages at point C?e. According to sticky wage theory of aggregate supply, how do real wages at point Acompare to real wages at point B? How do real wages compare to real wages atpoint C?f. Judging by the impact of the money supply on nominal and real wages, is thisanalysis consistent with the proposition that money has real effects in the short runbut is neutral in the long run?

Since you have asked multiple questions, and according to policy we can solve only 1 question, and…

QUESTION 4 Chapter 14 Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves, if more than one diagrams are drawn for this question, I will give a zero grade for this question] a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both-short run and long-run aggregate supply.

QUESTION 4 Chapter 14 Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves, if more than one diagrams are drawn for this question, I will give a zero grade for this question] a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both-short run and long-run aggregate supply.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 5PA

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