An economy’s AD curve is described by the following equation: Y = 13,400 — 20,00

Question

An economy’s AD curve is described by the following equation:

Y = 13,400 — 20,000formula25.mml,

where Y is output and formula25.mml is inflation (measured as a decimal). Initially, the inflation rate is 0.04 (i.e., 4 percent) and potential output equals 12,000

a)Find inflation and output in short-run equilibrium.

Instructions: Round your inflation rate to 2 decimal places.

Inflation rate : ??

Output : ???

b) b) Find inflation and output in long-run equilibrium.

Instructions: Round your inflation rate to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Leave no cells blank - be certain to enter "0" wherever required.

Inflation rate :???

Output: ???

Explanation / Answer

a) Inflation = 4% given by the problem Y = 13,400 — 20,000formula25.mml Y = 13400 - 20000*0.04 Output = 12,600 In the short run, it is ok to produce more than potential. b) In the long run, Y=12000 Y = 13,400 — 20,000formula25.mml 12000 = 13,400 — 20,000formula25.mml formula25.mml = (13400 - 12000)/20000 formula25.mml = 0.07 Inflation is 7% Output is 12000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.