2. Suppose the Fed reduces the money supply by20 percent.(Use AD/AS model with sticky prices) a. What happens to the aggregate demand curve?  b. What happens to the level of output and the price level in the short run and in the long run?  c. According to Okun’s law, what happens to unemployment in the short run and in the long run?

Q: 2. Suppose that the economy is in a long-run equilibrium. a. Use a diagram to illustrate the state…

A: Long run equilibrium occurs at the point where the short run supply curve, long run supply curve and…

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Q: Suppose the economy is in short-run equilibrium. The    of $4 trillion drives unemployment    the…

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A: Option B is correct Increase interest rates and increase taxes

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A: In the long run, all the resources are fully utilized. Thus, there is a full employment in the long…

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