ANSWERS TO HOMEWORK WEEK SEVEN EC141

ANSWERS TO HOMEWORK WEEK SEVEN EC141 - ANSWERS TO HOMEWORK...

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ANSWERS TO HOMEWORK WEEK SEVEN EC141 CHAPTER 13 2. An increase in the price of oil increases the cost of production in many manufacturing and service industries. Higher costs will mean that these industries slow down. A cost increase pushes up the aggregate supply curve (the same as a shift to the left). This has the effect of pushing up the price level and reducing the level of aggregate output in the short run. Assuming the Fed does nothing to the money supply, interest rates could rise or fall. The increase in the price level will cause money demand to shift to the right while falling real output will cause it to shift to the left. 3 (a) The price level will rise considerably. Equilibrium GDP will rise only a little. Aggregate output (income), Y Price level, P AS AD 1 AD 2 P 2 P 1 Y 2 Y 1 Chapter 13, problem 3(a)
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3 (b) GDP will rise considerably; prices will rise only a little. The price level will rise considerably. Equilibrium GDP may fall, but by less than it would if the Fed did not accommodate. Neither the price level nor output would change.
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This note was uploaded on 08/15/2011 for the course EC 141 taught by Professor - during the Summer '08 term at Park.

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ANSWERS TO HOMEWORK WEEK SEVEN EC141 - ANSWERS TO HOMEWORK...

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