Provide a Detailed Aggregate Supply Curve & Rational Expectations Questions

Question Description

I’m studying for my Economics class and don’t understand how to answer this. Can you help me study?

Provide a detailed answer for each of the following questions. Use should use diagrams and graphs to aid in your answer. Cite your sources

1.Explain why the aggregate-supply curve is vertical in the long run. Why might the long-run aggregate-supply curve shift?

2.Use the liquidity-preference theory to explain why the demand for money slopes downward.

3.What is the theory of rational expectations? How does it apply to the debate about the trade off between inflation and unemployment?

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Final Answer

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Running Head: QUESTIONS.

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1. Explain why the aggregate supply curve is vertical in the long run. Why might the long-run
aggregate-supply curve shift?
The aggregate-supply curve is vertical in the long run. This is because the total production of
services and goods in the economy is its actual gross domestic product (GDP). In the long run,
the gross domestic product is dependent on labour supply, land, capital, availability of natural
resources, and the availability of relevant technology to convert these resources to services and
goods that can be utilized. In the long run, the above factors of production determine the number
of services and goods supplied in an economy. This implies that the quantity supplied will be the
same regardless of the level of the p...

ProfessorMyron (10507)
Boston College

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