Full employment output is 100. We have AD = 200 -2P where P is the price level. Suppose that a demand shock lowers the AD curve to 180 - 2P. Since the price is fixed, the quantity of produced in the short run immediately after the negative AD shock is (40, 50, 80, 100), but the price in the long run is (40, 50, 80, 100)

Full employment output is 100. We have AD = 200 -2P where P is the price level. Suppose that a demand shock lowers the AD curve to 180 - 2P. Since the price is fixed, the quantity of produced in the short run immediately after the negative AD shock is (40, 50, 80, 100), but the price in the long run is (40, 50, 80, 100)

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 4WNG

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