The homework is worth 20 points, so each answer will have points distribution at the instructor’s discretion.
Chapter 8 (a through e)
Problem 1
a. Given that the nominal wage rate equals 50, the equation for the short-run aggregate supply curve is Y = 11,250 – 20(50) 1,000P = 10,250 + 1,000P. The amount of short-run aggregate supply when the price level equals 2 is 10,250 + 1,000(2) = 12,250. The amount of short-run aggregate supply when the price level equals 1.25 is 10,250 + 1,000(1.25) = 11,500. The amount of short-run aggregate supply when the price level equals 1 is 10,250 + 1,000(1) = 11,250. The amount of short-run aggregate supply when the price level equals .8 is 10,250 + 1,000(.8) = 11,050, and it equals 10,250 + 1,000(.5) = 10,750 when the price level equals .5. The points on the short-run aggregate supply curve are: (10,750, 0.5); (11,050, 0.8); (11,250, 1.0); (11,500, 1.25); and (12,250, 2.0).
b. Given that the nominal wage rate equals 50, the equation for the short-run aggregate supply curve is Y = 11,250 – 20(50) + 1,000P = 10,250 + 1,000P. The amount of short-run aggregate supply when the price level equals 2 is 10,250 + 1,000(2) = 12,250. The amount of short-run aggregate supply when the price level equals 1.25 is 10,250 + 1,000(1.25) = 11,500. The amount of short-run aggregate supply when the price level equals 1 is 10,250 + 1,000(1) = 11,250. The amount of short-run aggregate supply when the price level equals .8 is 10,250 +1,000(.8) = 11,050, and it equals 10,250 + 1,000(.5) = 10,750 when the price level equals .5. The points on the short-run aggregate supply curve are: (10,750, 0.5); (11,050, 0.8); (11,250, 1.0); (11,500, 1.25); and (12,250, 2.0).
c. The short-run equilibrium values of real GDP and the price level are where aggregate demand and short-run aggregate supply are equal, which is the point
