AK_Chapter_14 - Chapter 14 SOLUTIONS TO TEXT PROBLEMS:...

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Chapter 14 SOLUTIONS TO TEXT PROBLEMS: Questions for Review 1. Decline: real GDP and investment spending. Rises: unemployment rate. 2. See Figure 14.7 in the textbook. 3. (1) wealth effect; (2) interest-rate effect; (3) real-exchange-rate effect. 4. Output depends on capital, labour, natural resources and technology, does not depend on price level. 5. (1) sticky-wage theory; (2) the sticky-price theory; (3) the misperceptions theories. 6. E.g., increased taxes on the returns to investment reduce investments. AD curve shifts => price level down, output down. Then people adjust their perceptions, wages, and prices => the short-run AS curve shifts down => equilibrium back on the long-run AS curve at a lower price level. 7. E.g., an increase in the expected price level shifts just the short-run AS curve (not the long-run AS curve) to the left. SR AS curve shifts => price level up, output down. Then people adjust their perceptions, wages, and prices => the short-run AS curve shifts back down => equilibrium back on the long-run AS curve at same price level.
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This note was uploaded on 06/27/2010 for the course ECONOMCIS Econ103 taught by Professor D.allen during the Winter '08 term at Simon Fraser.

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AK_Chapter_14 - Chapter 14 SOLUTIONS TO TEXT PROBLEMS:...

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