Solution to Problem Set 14 (ECO100)

Solution to Problem Set 14 (ECO100) - Prof. Gustavo Indart...

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Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Solution to Problem Set 14 Question 1 a. AD shifts up to the right because at each price level AE is now greater b. AD becomes flatter and shifts up (no change in vertical intercept) because the AE becomes steeper with no change in vertical intercept c. A movement down along the AD curve d. AD shifts up to the right as in a) e. AD shifts down to the left because at each price level AE is now smaller f. AD shifts up to the right as in a) Question 2 Suppose that initially the economy is inequilibrium at the level of full employment. The cost of producing each level of output is higher after the increase in the price of oil, and therefore the SRAS curve shifts up. The new equilibrium will be at a higher price level and lower level of income or output. A decrease in the level of output below full employment implies that unemployment has increased in the economy. P
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Solution to Problem Set 14 (ECO100) - Prof. Gustavo Indart...

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