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Chapter 11: Q. 11.1 (page 232)

Describe the short-run determination of equilibrium real GDP and the price level in the classical model

Short Answer

Expert verified

A rise in aggregate demand, according to the traditional model, will result in a rise in price level.

Step by step solution

01

Step: 1  Short-run determination:

The point on the GDP curve where it crosses the aggregation demand curve (also known as the "equilibrium level of income"). It's important to understand the difference between short-run and long-run equilibrium output levels.

02

Step: 2 Price level in the classical model:

The pricing level is calculated according to a traditional model.A rise in aggregate demand, according to the traditional model, will result in a rise in price level.A experience similar of the price point whereby the genuine amount of currency, M/P, has to be at its lengthy equilibrium.

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Most popular questions from this chapter

Consider Figure 11-10. Suppose that the real interest rate suddenly declines for reasons that do not relate to the price level. What happens to the nation's aggregate demand curve? In the short run, will the nation experience an inflationary gap or a recessionary gap? Explain.

Consider a country with an economic structure consistent with the assumptions of the classical model. Suppose that businesses in this nation suddenly anticipate higher future profitability from investments they undertake today. Explain whether or how this could affect the following:

aThe current equilibrium interest rate

bCurrent equilibrium real GDP

cCurrent equilibrium employment

dCurrent equilibrium saving

eFuture equilibrium realGDP

Determine the causes of short-run variations in the inflation rate

II A particle moving along the xaxis has its velocity described by the function \(v_{x}=2 t^{2} \mathrm{~m} / \mathrm{s}\), where \(t\) is in s. Its initial position is \(x_{0}=1 \mathrm{~m}\) at \(t_{0}=0 \mathrm{~s}\). At \(t=1 \mathrm{~s}\) what are the particle's (a) position, (b) velocity, and (c) acceleration?

Based on your answers to Problems 11-6and 11-7, can policymakers stabilize both the price level and real GDPsimultaneously in response to a short-lived but sudden rise in oil prices? Explain briefly.
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