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. If $M$ increases to 2,000 , what are the new short-run values of $P$ and $Y$ ?
c. Once the economy adjusts to long-tun equilibrium at $M = 2,000$ , what are $P$ and $Y$ ?