Assume That the Long-Run Aggregate Supply Curve Is Vertical at Y

Essay

Assume that the long-run aggregate supply curve is vertical at Y = 3,000 while the short-run aggregate supply curve is horizontal at P = 1.0.The aggregate demand curve is Y = 2(M/P)and M = 1,500.a.If the economy is initially in long-run equilibrium,what are the values of P and Y?
b.What is the velocity of money in this case?
c.Suppose because banks start paying interest on chequing accounts,the aggregate demand function shifts to Y = (1.5) (M/P).What are the short-run values of P and Y?
d.What is the velocity of money in this case?
e.With the new aggregate demand function,once the economy adjusts to long-run equilibrium,what are P and Y?
f.What is the velocity now?