An economy has the following AD and AS curves. AD curve: Y = 300 + 30(M/P) AS cu

Question

An economy has the following AD and AS curves. AD curve: Y = 300 + 30(M/P) AS curve: Y = .Y^bar + 10(P - P^bar) Assume Y^bar = 500 and M = 400. Suppose P^e = 60. The equilibrium value of P is and the equilibrium value of Y is M increases to 700 unanticipatedly. The equilibrium value of P changes to and the equilibrium value of Y changes to The Fed announces that M will be increased to 700, which the public believes. Now the equilibrium value of P changes to and the equilibrium value of Y changes to . The value of P^e will change to .

Explanation / Answer

answer a)

at equilibrium level

AD=AS

300+3*M/P=500+10(p-pbar)

300+3(400/P)=500+10(P-60)

1200/P-10P+60=140

1200-10p2+60p=140p

1200=80p-10p2

60=p(4-5p)

since p cant b negative

Thus eqilibrium value of p=60 and equilibrium income is=

500+10(60-60)

=500

p=60

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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