An economy's AD curve is described by the following equation:
Y = 13,400 - 20,000formula25.mml,
where Y is output and formula25.mml is inflation (measured as a decimal). Initially, the inflation rate is 0.04 (i.e., 4 percent) and potential output equals 12,000
a)Find inflation and output in short-run equilibrium.
b) Find inflation and output in long-run equilibrium.