AD/AS Static Analysis: 1. Starting from full employmen
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AD/AS Static Analysis: 1. Starting from full employment, the US economy experiences a negative temporary supply shock,
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AD/AS Static Analysis: 1. Starting from full employment, the US economy experiences a negative temporary supply shock, caused by higher oil prices. a. What happens to P, Y and U rate as a result? Show this on the AD/AS graph. b. Suppose labor unions in the US have a great degree of labor market power. What will happen to the US economy over time as a result of this price shock? How does your answer differ if L unions are weak?
2. True or False. Explain. You do not need to use a graph.
a. â€œA recessionary (or deflationary) gap occurs when the actual level of real GDP is greater than potential GDP and the actual U rate is greater than the natural rate of U.â€
b. â€œAn increase in K or technology will shift the LRAS curve.â€
c. â€œAn increase in the price level will increase production in both the LR and the SR.â€
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