Booms and recessions (III): aggregate supply and demand - The AD-AS model: basics

5 important questions on Booms and recessions (III): aggregate supply and demand - The AD-AS model: basics

What is the formula for the AS-curve?

ρ = ρe + λ(Y-Y*)

What happens to real exchange rates if one slides down the AD-curve and how does that work?

Sliding down the AD curve, falling prices increase real money supply and make real exchange rate depreciate

In what five situations does the AD-curve move up under fixed exchange rates?

When exchange rate, world prices or government spending increase or
world interest rate or expected depreciation fall
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What equalities hold at the intersection of the LAS curve and the AD curve?

ρ=ρeLR
Y=Y*

The point right of the LAS curve are what real wages? (unions)

Real wages lower than expected by trade unions

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