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Chapter 11: Q. 3 (page 251)

"There is absolutely no distinction between equilibrium in the classical model and the model of longrun macroeconomic equilibrium." Is this statement true or false? Support your answer.

Short Answer

Expert verified

The given assertion is untrue. There is a distinction to be made between it model and the long-run equilibrium model.

Step by step solution

01

Step: 1 Short-run model :

In the conventional short-run model, different fixed factors of production are taken into account, whereas in the long-run equilibrium model, all factors are variable. However, in both the long- and short equilibrium, the supply curve is the same.

02

Step: 2 Conclusion:

In above,all factors are variable so,the given assertion is untrue. There is a distinction to be made between it model and the long-run equilibrium model.

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Most popular questions from this chapter

How do you suppose that the increase in Japan's consumption tax rate affected the nation's equilibrium price level, other things being equal?

For each question that follows, suppose that the economy begins at point A. Identify which of the other points on the diagram-point B, C, D, or E-could represent a new short-run equilibrium after the described events take place and move the economy away from point A. Briefly explain your answers.

a. Most workers in this nation's economy are union members, and unions have successfully negotiated large wage boosts. At the same time, economic conditions suddenly worsen abroad, reducing real GDP and disposable income in other nations of the world.

b. A major hurricane has caused short-term halts in production at many firms and created major bottlenecks in the distribution of goods and services that had been produced prior to the storm. At the same time, the nation's central bank has significantly pushed up the rate of growth of the nation's money supply.

c. A strengthening of the value of this nation's currency in terms of other countries' currencies affects both the SRAS curve and the AD curve.

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

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 whose economic structure matches the assumptions of the classical model. After reading a recent best-seller documenting a growing population of low-income elderly people who were ill prepared for retirement, most residents of this country decide to increase their saving at any given interest rate. Explain whether or how this could affect the following:

a The current equilibrium interest rate

b Current equilibrium real GDP

c Current equilibrium employment

d Current equilibrium investment

e Future equilibrium real GDP
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