ECON 200 Problem Set 9 Fall 2007

ECON 200 Problem Set 9 Fall 2007 - short-run aggregate...

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Due at the beginning of class on December 6, 2007 Economics 200 Macroeconomic Theory Problem Set 9 I claimed in class that, in the neoclassical model of the economy that we are studying, aggregate demand plays a role in determining the quantity of real GDP only if prices are sticky. Demonstrate this claim by assuming that the sticky price model of
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Unformatted text preview: short-run aggregate supply is correct and showing that, in that model, as the fraction of fixed price firms falls to zero, the short-run response to a rise in government spending approaches the long-run response that we studied earlier in the semester. You may assume that the economy in question is closed....
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