Putting all markets together: the AS-AD model
One AD-AS economy is described by the following behavioral equations
C=4+0.7(Y-T), I=238+0.15Y-500i, T=1000, G=1280, M=42000, (M/P)d =12+0.8Y-600i;
F(u, z)=(z/300)-10u, Y=2N, the expected price level is P e=8,
1) Explain what is meant by the "wage-price" spiral.
The wage-price spiral refers to the effects of low unemployment on inflation. Specifically, when the
unemployment rate falls, the nominal wage will rise. As W rises, firms' costs increase causing them
1) Briefly explain the disagreement among economists about how and when to reduce U.S.
Some economists argue that deficit reduction should start now and proceed rapidly. Other
economists argue that too fast a reduction in deficit
Due on October 28th, 2015
All students: 10:00am class slot
1. First, define the LM curve. Second, explain why it has its particular shape.
2. Based on your understanding of the IS-LM model, graphically illustrate and explain w