Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (c) What is the impact of an adverse supply shock which forces firms to increase their markups on the evolution over time of the interest rate, the out- put level and the price level.' Carefully explain the economics behind these dynamics. What is the long term effect of the adverse aggregate supply shock
Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (c) What is the impact of an adverse supply shock which forces firms to increase their markups on the evolution over time of the interest rate, the out- put level and the price level.' Carefully explain the economics behind these dynamics. What is the long term effect of the adverse aggregate supply shock
Chapter16: Monetary Policy
Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model
Problem 3SQP
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