1 answer

1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure...

Question:

1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure is vertical and might shi
1. Why the slope of short-run aggregate supply cure matters? Why the long-run aggregate supply cure is vertical and might shift? Money neutrality states that a change in the money supply affects_ (real/nominal) variables only. Most economists believe that money neutrality is a good description of how money affects the economy in the __(short run/long run). 2. Suppose that a U.S. dollar buys more gold in Australia than it buys in Russia. What does purchasing-power parity imply should happen?

Answers

Answer 1 - The short run curve of supply helps to study the responsiveness of the quantity supplied as a result of the change in the price. It is upward sloping because of the positive relation between the price and the quantity supplied.

In the long run , the supply does not depend upon price. It is inelastic and hence the long run supply curve is vertical. It could only shift as a result of the change in the employment levels and the productivity of the labor and other resources.

Money neutrality only affects the Nominal variables.

Long run

ANSWER 2 - As per the purchasing power parity , the value of currency is such that it buys the same amout of goods in every country. As per this concept the Dollar should buy the same quantity of Gold in Russia as in Autralia.

There should not be difference in this quantity as per PPP.

.

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