Please be sure to explain why and how to the questions -Thank you **Economics Problem Set****9. Suppose the economy is currently at a long-run equilibrium.****a. Use the AD-AS model and the liquidity preference model to graphically depict the current equilibrium.**In your AD-AS (Aggregate Demand - Aggregate Supply) model, plot the aggregate demand curve (AD) and the long-run aggregate supply curve (LRAS) such that they intersect at the same point on the price level (vertical) axis. This point of intersection represents the long-run equilibrium where the economy operates at potential output and a natural rate of unemployment. In the liquidity preference model, plot the money supply curve (a vertical line, indicating a fixed money supply) against the downward-sloping money demand curve. The intersection point of these curves determines the equilibrium interest rate.**b. Now suppose the central bank wants to use monetary policy to push output higher than the potential level. Give three tools the central bank can use to reach this goal.**1. **Lowering the interest rate**: By decreasing the discount rate, the central bank makes borrowing cheaper, increasing investment and consumer spending.2. **Open market operations**: Purchasing government securities to inject liquidity into the economy, thereby increasing money supply.3. **Decreasing reserve requirements**: Lowering the amount of reserves banks are required to hold, enabling them to lend more, which increases the money supply and boosts spending.**c. On the same graph from part (a), graphically depict the changes after the monetary policy from part (b).**In the AD-AS model, represent the monetary policy by shifting the aggregate demand curve (AD) to the right, indicating an increase in demand at each price level, leading to higher output and price levels. In the liquidity preference model, show the monetary policy by shifting the money supply curve to the right, resulting in a lower equilibrium interest rate.**d. Will the economy stay at this equilibrium? Why or why not?**The economy might not stay at this new equilibrium in the long run. An output level above the potential output can lead to inflationary pressures. As prices rise, costs of production also increase, eventually causing the SRAS (short-run aggregate supply) to shift to the left. This will push the economy back toward its potential output, but at a higher price level, moving the economy back to a new long-run equilibrium.**e. On the same graph from part (c), graphically depict the new long-run equilibrium

Note:- Since we can only answer up to three subparts, we'll answer the first one. Please repost the…

9. Suppose the economy is currently at a long-run equilibrium. a. Use the AD-AS model and the liquidity preference model to graphically depict the current equilibrium. b. Now suppose the central bank wants to use monetary policy to push output higher than the potential level. Give three tools the central bank can use to reach this goal. c. On the same graph from part (a), graphically depict the changes after the monetary policy from part (b). d. Will the economy stay at this equilibrium? Why or why not? e. On the same graph from part (c), graphically depict the new long-run equilibrium. f. Using your answers from the previous parts, explain the concept of monetary neutrality.

9. Suppose the economy is currently at a long-run equilibrium. a. Use the AD-AS model and the liquidity preference model to graphically depict the current equilibrium. b. Now suppose the central bank wants to use monetary policy to push output higher than the potential level. Give three tools the central bank can use to reach this goal. c. On the same graph from part (a), graphically depict the changes after the monetary policy from part (b). d. Will the economy stay at this equilibrium? Why or why not? e. On the same graph from part (c), graphically depict the new long-run equilibrium. f. Using your answers from the previous parts, explain the concept of monetary neutrality.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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