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Effects of an increase in unemployment benefits

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Reference no: EM131191901

Supply shocks and the medium run

Consider an economy with output equal to the natural level of output. Now suppose there is an increase in unemployment benefits.

  • Using the model developed in this chapter with an interest rate rule, show the effects of an increase in unemployment benefits on the position of the AD and AS curves both in the short run and in the medium run.
  • How will the increase in unemployment benefits affect output and the price level in the short run and in the medium run?

Reference no: EM131191901

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