What would cause (a) a steep ADI curve; (b) a gently sloping ADI curve? Compare the short-run and longrun effects of (i) a temporary adverse supply shock and (ii) a permanent supply reduction under each of (a) and (b).
Answer to relevant QuestionsUnder what circumstances would a rightward shift in the ADI curve lead to a permanent increase in real national income?Why is it difficult to use fiscal policy to ‘fine tune’ the economy?For what reasons might the long-run aggregate supply curve be (a) Vertical; (b) Upward sloping; (c) Downward sloping?Why do developed countries experience a degree of convergence over time? Would you expect there to be total convergence of GDP per head?Why might market-orientated supply-side policies have undesirable side-effects on aggregate demand?
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