ECON 1BB3 Lecture Notes - Autarky, Aggregate Supply

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Hannah Holmes

Document Summary

Case 3: a closed economy begins in long run equilibrium. Show what happens in the short run and the long run, including the impact on output, the unemployment rate, and the price level. Describe how the economy moves from short run equilibrium to long run equilibrium (assuming that the government takes no action). Case 4: a closed economy beings in long run equilibrium. A terrorist attack causes consumer spending to decline drastically. Show what happens in the short run, including the impact on output, the unemployment rate, and the price level. Now suppose that the government intervenes, using monetary policy. Show the new equilibrium, after the policy has taken effect. When you decrease taxes, you have a higher (c). Case 5: suppose a closed economy starts in long run equilibrium. An increase in oil prices causes a negative supply shock (to the sras curve only): show the new short run equilibrium.