ProblemSet-4-Summer2016-Solutions-v2.pdf - Econ 100B...

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Econ 100B: Economic Analysis – MacroeconomicsProblem Set #4 – SolutionsDue Date: July 21st, 20161. Consider a country that suffers an SARS epidemic that reduces the population by 20%.(a) Draw the AD/AS analysis (in the usual output-inflation graph that we have usedin class).Begin with the initial general equilibrium and walk through (i) theimpact of the loss of life on LRAS, (ii) the subsequent changes in AS and cor-responding short-run equilibria and (iii) the nature of the general equilibrium towhich the country will evolve. Label your graph carefully and completely.
(b) In a brief narrative, discuss the graph you have drawn.Use equations wherepossible to explain why you drew the graph in the way that you did.
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