13. Suppose the economy is in a long-run equilibrium. a. Use the AD-AS model to graphically depict the current state of the economy. b. Use the graph in part (a) to describe the change the economy will go through if technological progress leads to higher productivity. What happens to the equilibrium aggregate price and equilibrium output? c. After the change in part (b), is the economy still in a long-run equilibrium? Why or why not?

Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: An Introduction To Basic Macroeconomic Markets
Section: Chapter Questions
Problem 2CQ
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13. Suppose the economy is in a long-run equilibrium.
a. Use the AD-AS model to graphically depict the current state of the economy.
b. Use the graph in part (a) to describe the change the economy will go through if
technological progress leads to higher productivity. What happens to the equilibrium
aggregate price and equilibrium output?
c. After the change in part (b), is the economy still in a long-run equilibrium? Why or why
not?
d. Do we observe any output gap after the change? How do you know?
e.
What will happen to the economy in the long run? Make sure to use the concept of
sticky wages to support your answer.
f.
Graphically depict the change in part (e). Compared to the initial long-run equilibrium,
what happens to the equilibrium aggregate price and equilibrium output?
Transcribed Image Text:13. Suppose the economy is in a long-run equilibrium. a. Use the AD-AS model to graphically depict the current state of the economy. b. Use the graph in part (a) to describe the change the economy will go through if technological progress leads to higher productivity. What happens to the equilibrium aggregate price and equilibrium output? c. After the change in part (b), is the economy still in a long-run equilibrium? Why or why not? d. Do we observe any output gap after the change? How do you know? e. What will happen to the economy in the long run? Make sure to use the concept of sticky wages to support your answer. f. Graphically depict the change in part (e). Compared to the initial long-run equilibrium, what happens to the equilibrium aggregate price and equilibrium output?
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