CAS EC 102 Lecture Notes - Lecture 26: Uric Acid, Nissan L Engine, Money Supply
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Practice problems (macroeconomic equilibrium and phillips curves: refer to figure 12-3. Suppose the economy is at point c. if government spending decreases in the economy, where will the eventual long-run equilibrium be: a, b, c, d. Recessionary gap: transition to the long run: suppose that the economy is initially in long-run equilibrium, and then the fed lowers interest rates. As a result, real gdp will ___ in the short run, and ___ in the long run: decrease; decrease further, decrease; increase to its initial level. Increase; decrease to its initial value: increase; increases further. Dynamics of a negative supply shock: refer to figure 17-4. Consider the phillips curves shown in the above graph. Consider the shift in the short-run phillips curves shown in the above graph. Initially, expected & actual inflation = 3%, unemployment = natural rate (5%): govt. policy shifts ad right, makes inflation 3% higher than expected, u-rate falls to 4%.