Economics Homework Help. ECON 205 KPU Demand Function when Economy Adjusts to Long Run Equilibrium Ques
Question 1 [8 marks]
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Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2 × M / P, and M = 1,500. a.
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If the economy is initially in long-run equilibrium, what are the values of P and Y?
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b.
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What is the velocity of money in this case?
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c.
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Suppose because banks start paying interest on chequing accounts, the aggregate demand function shifts to Y= 1.5 × M / P. What are the short-run values of P and Y?
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d.
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What is the velocity of money in this case?
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e.
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With the new aggregate demand function, once the economy adjusts to long-run equilibrium, what are P and Y?
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f.
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What is the velocity now?
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Economics Homework Help