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ECON 1BB3 (535)
Lecture

ch14_sol.pdf

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Department
Economics
Course
ECON 1BB3
Professor
Bridget O' Shaughnessy
Semester
Fall

Description
CHAPTER 14 HOMEWORK ANSWERS Suggested problems: 2,3,5,7,8,9,12 2. a. P LRAS SRAS P 0 AD Y* Y b. P LRAS SRAS P0 P1 AD AD’ Y Y* Y 1 Output falls, price falls, unemployment rises. c. P LRAS SRAS SRAS’ P 0 P 1 P 2 AD AD’ Y* Y The higher unemployment rate means that workers will gradually accept lower nominal wages. People expect prices to fall in the future and therefore the SRAS curve shifts out to the right. Long run equilibrium has a lower price level, a return to the natural level of output and a return to the natural rate of unemployment. 3. a.hitt b. shift in (higher minimum wage means L falls) 5. a. The AD curve slopes downward because of (i) the wealth effect,
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